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Special Audit, Arizona Sports and Tourism Authority : Report to the Arizona Legislature

Special Audit, Arizona Sports and Tourism Authority : Report to the Arizona Legislature

A REPORT
TO THE
ARIZONA LEGISLATURE
Debra K. Davenport
Auditor General
Special Audit
Arizona Sports and
Tourism Authority
Performance Audit Division
December • 2010
REPORT NO. 10-09
The Auditor General is appointed by the Joint Legislative Audit Committee, a bipartisan committee composed of five senators
and five representatives. Her mission is to provide independent and impartial information and specific recommendations to
improve the operations of state and local government entities. To this end, she provides financial audits and accounting services
to the State and political subdivisions, investigates possible misuse of public monies, and conducts performance audits of
school districts, state agencies, and the programs they administer.
The Joint Legislative Audit Committee
Audit Staff
Copies of the Auditor General’s reports are free.
You may request them by contacting us at:
Office of the Auditor General
2910 N. 44th Street, Suite 410 • Phoenix, AZ 85018 • (602) 553-0333
Additionally, many of our reports can be found in electronic format at:
www.azauditorv.gov
Representative Judy Burges, Chair
Representative Tom Boone
Representative Cloves Campbell, Jr.
Representative Rich Crandall
Representative Kyrsten Sinema
Representative Kirk Adams (ex officio)
Senator Thayer Verschoor, Vice Chair
Senator John Huppenthal
Senator Richard Miranda
Senator Rebecca Rios
Senator Bob Burns (ex officio)
Dale Chapman, Director and Contact Person
Robin Hakes, Team Leader
Sebrina Beckstrom
Cathy Clark
Winter Morris
Rita Seto
2910 NORTH 44th STREET • SUITE 410 • PHOENIX, ARIZONA 85018 • (602) 553-0333 • FAX (602) 553-0051
MELANIE M. CHESNEY
DEPUTY AUDITOR GENERAL
DEBRA K. DAVENPORT, CPA
AUDITOR GENERAL
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
December 21, 2010
Members of the Arizona Legislature
The Honorable Janice K. Brewer, Governor
Mr. Tom Sadler, President/Chief Executive Officer
Arizona Sports and Tourism Authority
Transmitted herewith is a report of the Auditor General, A Special Audit of the Arizona
Sports and Tourism Authority. This report is in response to Laws 2010, Ch. 5 and was
conducted under the authority vested in the Auditor General by Arizona Revised Statutes §41-
1279.03. I am also transmitting within this report a copy of the Report Highlights for this
audit to provide a quick summary for your convenience.
As outlined in its response, the Arizona Sports and Tourism Authority agrees with most of
the findings and plans to implement all of the recommendations, including one
recommendation that it plans to implement in a different manner.
My staff and I will be pleased to discuss or clarify items in the report.
This report will be released to the public on December 22, 2010.
Sincerely,
Debbie Davenport
Auditor General
Attachment
cc: Bill Peltier, Chairman
Board of Directors
Arizona Sports and Tourism Authority
2010
December • Report No. 10 - 09
Arizona Sports and
Tourism Authority
Our Conclusion
The Arizona Sports and
Tourism Authority
(Authority) is responsible
for operating and
marketing the University of
Phoenix Stadium, the
multipurpose facility that is
the home of the Arizona
Cardinals (Cardinals) and
the Fiesta Bowl; and
distributing monies for
various statutory purposes.
The Authority has taken
steps to address its
financial situation, but
projects continuing
revenue shortfalls affecting
its ability to meet statutory
distributions and resulting
in a reduced operating
reserve. These shortfalls
should not affect its ability
to meet its bond
obligations. The Authority’s
procurement of
concessions services
largely adhered to best
practices and it should use
these best practices for
future procurements. The
Authority should also make
some minor changes to its
oversight of the facility
manager and review of
youth and amateur sports
grant projects.
REPORT
HIGHLIGHTS
SPECIAL AUDIT
Authority has improved financial situation, but
still faces challenges
The Authority receives its operating
revenue from normal operations of the
facility, including rental payments,
concessions commissions, and facility-use
fees for all events held at the facility,
except Cardinals games. It also receives
nonoperating revenues from a Maricopa
County hotel bed tax and car rental
surcharge; state income taxes paid by
the Cardinals’ corporate organization, its
employees, and their spouses; and
sales taxes generated from events held
at the facility.
Statutes establish the amounts and
priority for using the Authority’s revenues.
The revenues go first to pay bonds
issued to construct the multipurpose
facility, then for tourism promotion,
Cactus League promotion, youth and
amateur sports programs, authority
operations, and its reserves.
The Authority projects that it will have
operating deficits through fiscal year
2014 resulting in a cumulative operating
deficit of approximately $6 million by
fiscal year 2016.
Authority has taken steps to address
its financial situation—The Authority
has a $9 million operating reserve as of
June 30, 2010, which has resulted from
steps it has taken to address its financial
situation. These steps include reducing
operating expenses for both the facility
and the Authority, such as reducing
staffing.
Other steps taken pertained to the
Authority’s concessionaire contract.
Specifically, it obtained a $1 million zero-percent
interest rate loan from its new
concessionaire that it will essentially not
have to pay back if the contract is not
terminated, as well as $500,000 annually
for 4 years in cash advances against the
Authority’s share of future concessions
revenues. It also entered into a separate
contract with a second event
management company affiliated with its
new concessionaire. The contract
provides guaranteed operational revenue
increases and/or cost reductions of
$750,000 each year at least until 2012.
After that, the Authority can renew this
contract annually for an indefinite time as
long as the new concessionaire contract
is in effect.
The Authority also took advantage of
interest rate differences
related to its variable-rate
senior bonds and received
two payments totaling
approximately $2.7 million.
The Authority still faces
financial difficulties for the
foreseeable future. Hotel bed
taxes and car rental
surcharges that the Authority
receives have decreased from
approximately $25.5 million in
fiscal year 2007 to
Summary of Projected Cumulative Operating Deficit
Fiscal Years 2011 through 2016
(In Millions)
(Unaudited)
Fiscal
Year
2011 $ (2.6) $ (2.6)
2012 (3.0) (5.6)
2013 (1.3) (6.9)
2014 (0.8) (7.7)
2015 0.3 (7.4)
2016 1.4 (6.0)
Projected
Operating (Deficit)
Surplus
Projected
Cumulative
Operating Deficit
approximately $21 million annually in fiscal years
2009 and 2010. As a result, although revenues were
sufficient to meet bond debt obligations, starting in
fiscal year 2010, they were insufficient to fully fund
tourism promotion, Cactus League promotion,
youth and amateur sports, and the Authority’s
operations. The Authority projects the same
outcome through fiscal year 2016. Additionally, the
Authority projects that its operating deficits will
reduce its operating reserves by approximately $7.7
million between fiscal years 2011 and 2014. Further,
the Authority’s anticipated revenues are not
sufficient to fund three statutorily required reserves
for youth and amateur sports, operations, and
capital repair and replacement.
Authority’s options to reduce financial shortfall
limited—A change in the bed tax and rental car
surcharge would require voter approval, and
changes in NFL state income taxes, sales tax
recapture, or the revenue distribution stream would
require legislative action. The Authority’s various
facility agreements further limit its options for
generating revenues.
Recommendation:
The Authority should continue to explore options for
increasing facility event revenues and decreasing
operating expenses, such as reviewing its legal
services to determine if opportunities exist to reduce
these expenses.
page 2
Although the Authority is exempt from the state
procurement requirements, it has adopted its own
procurement policy. The policy provides a $25,000
threshold that triggers competitive bidding or
documentation of the reason competitive bidding is
not used and a $100,000 limit the Chief Executive
Officer can contract for before prior approval by the
Board of Directors is required.
Following procurement best practices can help
produce quality contracts. One of the Authority’s
strategies to improve its financial situation was to
rebid its concessions contract. This procurement
largely adhered to best practices. The Authority’s
concessions request for proposal addressed its
business needs, the scope of services, and
performance requirements. It used a team to
evaluate the written proposals using appropriate
guidelines, and the contracts were awarded based
on the evaluators’ recommendation.
Authority did not use a competitive procurement
process for some contracts—Although the
Authority spent more than $604,000 for its primary
legal services in fiscal years 2008 through 2010,
and a total of $96,000 on lobbying in fiscal years
2009 and 2010, it did not competitively procure
these contracts or document the reasons why a
competitive procurement would be impracticable,
as its policy requires.
Recommendations:
• The Authority’s existing procurement policy does
not include many of the procurement best prac-tices
it used to bid its concessions contract and it
should incorporate these procurement practices
in to its policies.
• The Authority should follow its policy for com-petitively
procuring services valued at more than
$25,000 or document why a competitive bid is not
practicable.
Use style: Finding: Heading (Purple)
Concessions procurement largely adhered to best
practices; additional policies and procedures for future
procurements would be helpful
Authority pays bonds, but has reached debt capacity
The multipurpose facility (University of Phoenix
Stadium) cost more than $465 million to build. The
Authority paid for most of its contribution by issuing
about $277.6 million in revenue bonds. The cost of
these bonds, most of which will be paid by 2031,
including interest, is expected to total approximately
$550.8 million. The Cardinals contributed $148.2
million toward facility construction and development
costs, $25 million of which is being repaid through
facility-use fees collected on event tickets. Although
Use style: Finding: Heading (Purple)
Facility manager oversight has improved, but minor
additional steps needed
page 3
The facility manager is responsible for the
management and operation of the facility,
including marketing the facility, booking
events, facility maintenance and custodial
services, security, and overseeing the
concessionaire. The Authority has revised the
facility manager incentive fee structure to
make it more performance-based. The
previous incentive fee structure was less
performance-based than contracts at some
other National Football League stadiums. Now
it bases the objective incentive fee on specific
goals, such as attendance and the number of
events. The Cardinals and the Fiesta Bowl
may recommend that the facility manager
receive the subjective incentive fee based on
their evaluations of the facility manager’s
performance; however, the Authority makes
the final determination whether or not to award the
fee.
Authority has improved oversight of facility
manager—After each event, the facility manager
settles with event promoters. The Authority’s new
event settlement procedures allow it to better
ensure that the facility manager adequately
reconciles event settlements. Specifically, the
Authority reviews at least one monthly event
settlement and verifies financial information, such
as comparing the ticket report and actual ticket
sales.
Some reviews still too limited—In monthly
meetings with the facility manager, the Authority
reviews and discusses monthly and quarterly
preventative maintenance. However, these reports
do not document whether maintenance was
performed according to the preventative
maintenance schedule. To ensure that preventative
maintenance is performed as scheduled, the
Authority should require a monthly report showing
which items on the maintenance schedule were
completed.
Although the Authority reviews the facility
manager’s expenses, its review is limited. For
example, it reviews direct expenses, but does not
review indirect expenses, such as payroll, training
costs, or office expenses, such as telephone or
postage. The Authority also does not review check
registers or bank reconciliations.
Recommendations:
The Authority should:
• Ensure the facility manager performs preventa-tive
maintenance as scheduled.
• Expand its review of the facility manager’s indi-rect
expenses, including monthly check registers
and bank reconciliations.
the City of Glendale did not contribute toward the
development and construction of the facility, it
contributed $6.7 million for street improvements.
The Authority also issued $32.4 million in
subordinate revenue bonds to fund part of the City
of Surprise Stadium construction as part of its
Cactus League responsibilities.
The Authority has pledged nearly all of its
revenues to meet its debt service obligations,
which it is meeting, and it appears that it will be
able to continue to meet. However, the Authority
cannot incur additional debt because of its bond
obligations, Cactus League and youth and
amateur sports commitments, and projected
operating deficits.
Source: Global Spectrum. (2007). University of Phoenix Multipurpose
Football Stadium. [Photograph]. Retrieved January 6, 2009,
from http://www.universityofphoenixstadium.com/index.php
Authority promoting Cactus League, but commitments
potentially affected by revenue shortfall
Authority funding has helped youth and amateur sports,
but future funding potentially limited
page 4
As of June 30, 2010, the Authority had awarded
more than $12.5 million in youth and amateur sports
project grants. The Authority did not have sufficient
revenues in fiscal year 2010 to fully fund the youth
and amateur sports program according to statutory
requirements and projects the same through fiscal
year 2016. However, the Authority has sufficient
monies to meet the commitments for grants
awarded.
The Authority distributes most of the money through
a biennial grant program, awarding approximately
$7.1 million during the 2004 through 2010 biennial
grant cycles. It has established, and largely follows,
policies and procedures for this program. However,
to improve the program, the Authority should make
some administrative changes such as improving its
review of reimbursement requests. In one instance,
the recipient transposed numbers on the request for
reimbursement and also changed the scope of the
project without the Authority’s approval.
The Authority also has a quick grant program that
focuses on equipment-related needs and pays up
to two-thirds, with a maximum of $2,500, of projects
not exceeding $10,000. The Authority has awarded
76 quick grants totaling more than $151,000.
However, for five grants, auditors could not
determine whether the Authority issued the quick
grant on a reimbursement basis as required by the
quick grant funding requirement. In addition, it
previously advanced grant funding to applicants
and for some pre-May 2008 grant applicants, it did
not take steps to completely close out project files
or ensure the monies were spent as intended.
The Authority also issued 3 grants before it
established the two grant programs. It paid
$150,000 toward the construction of the South
Mountain YMCA sports fields, and agreed to
contribute approximately $4.1 million to the City of
Avondale for a regional sports complex, and $1
million for the construction of multipurpose sports
fields in the City of Glendale.
Recommendations:
The Authority should:
• Improve its biennial and quick grant application
processes by making some minor changes.
• Review quick grants and consider whether to
recover any grant monies used inappropriately.
REPORT
HIGHLIGHTS
SPECIAL AUDIT
December 2010 • Report No. 10 - 09
A copy of the full report is available at:
www.azauditor.gov
Contact person:
Dale Chapman (602) 553-0333
Arizona Sports and
Tourism Authority
The Authority issued $32.4 million in subordinate
revenue bonds and used $4.3 million in Cactus
League promotion monies to help pay for the City
of Surprise Stadium construction and the Phoenix
Municipal Stadium renovation. Between fiscal years
2005 and 2007, the Authority committed monies
to the Cities of Tempe, Scottsdale, Glendale, and
Goodyear for the construction or renovation of their
Cactus League facilities. These four cities paid
$259.2 million towards the cost of constructing or
renovating their facilities and the 6 Major League
Baseball teams using these facilities contributed
$18 million. According to the Authority’s agree-ments
with these cities, it has agreed to make
payments to these cities as revenues become
available through approximately $161.9 million in
commitments. However, because of anticipated
tourism revenue shortfalls, the Authority does not
anticipate that it will fully meet its commitments to
the Cities of Glendale and Goodyear. In addition to
the 6 Cactus League facilities described earlier, the
Authority projects it will contribute approximately
$66.6 million toward the renovation of 5 existing
Cactus League facilities from fiscal years 2020
through 2027.
Introduction & Background 1
Chapter 1: Concessions procurement largely adhered to
best practices; additional policies and procedures
to guide future procurement would be helpful 15
Authority has its own procurement policy 15
Following procurement best practices can
help produce quality contracts 16
Concessions procurement followed Authority’s policy
and largely adhered to best practices 17
Additional procurement policies and procedures would
help ensure future procurements also follow best
practices 22
Recommendations 25
Chapter 2: Authority has taken steps to improve financial
situation, but still faces challenges 27
Authority has taken actions, but revenues still insufficient
to satisfy all funding priorities 27
Limited options for increasing revenues and reducing
expenses available 34
Authority has reasonable 1-year revenue and expense
projections and prepares long-term revenue projections
for planning purposes 37
Recommendations 40
Office of the Auditor General
TABLE OF CONTENTS
page i
continued
Chapter 3: Authority meeting bond obligations, but has
reached debt capacity 41
Statutes allow Authority to issue bonds 41
Authority issued revenue bonds for facility construction
and Cactus League projects 42
Authority meeting bond obligations
with pledged revenues 46
Authority has reached debt capacity 46
Bondholder recourse limited 48
Chapter 4: Authority has improved oversight of facility
manager, but minor additional steps needed 49
Authority contracts for facility management, operations,
and maintenance 49
Authority has revised facility manager fee structure 50
Authority should continue to improve facility manager
oversight 53
Recommendations 56
Chapter 5: Authority complying with Cactus League statutory
requirements, but revenue shortfall will affect ability to meet
planned commitments 57
Statute requires Authority to renovate or
construct new Cactus League facilities 57
TABLE OF CONTENTS
continued
page ii
State of Arizona
Office of the Auditor General
page iii
TABLE OF CONTENTS
continued
Chapter 5 (Continued)
Cactus League facilities involve Authority’s financial
assistance and commitments 58
Tourism revenue shortfall will affect Authority’s ability to
meet planned commitments to two cities 62
Authority has planned for future renovations of existing
spring training facilities 65
Chapter 6: Authority funding has helped youth and amateur
sports, but future funding potentially limited 67
Revenue shortfall may limit future funding 67
Two small changes should be made to biennial grant
program 68
Authority should make one change to quick grant
program and consider seeking recovery of some
previously awarded monies 70
Authority issued three grants before formal grants
programs established 74
Recommendations 75
Appendix A: Statutory questions a-i
Appendix B: Events leading to issuance of concessions RFP b-i
State of Arizona
TABLE OF CONTENTS
continued
page iv
Appendix C c-i
Appendix D d-i
Appendix E: Methodology e-i
Agency Response
Tables
1 Examples of Monthly Distributions from the Tourism Revenue Clearing Account
December 2009 and June 2010 8
2 Schedule of Net Assets
As of June 30, 2008, 2009, and 2010
(In Millions) 11
3 Schedule of Revenues, Expenses, and Changes in Net Assets
Fiscal Years 2008 through 2010
(In Millions) 12
4 Contracts Entered into Subsequent to January 1, 2008
As of June 30, 2010 17
5 Impact of Revenue Shortfalls on Tourism Promotion, Cactus League Promotion,
and Youth and Amateur Sports Distributions
Fiscal Years 2001 through 2016
(In Millions) 32
6 Summary of Projected Cumulative
Operating Deficit
Fiscal Years 2011 through 2016
(In Millions)
(Unaudited) 33
Office of the Auditor General
page v
TABLE OF CONTENTS
continued
Tables (Continued)
7 Number of Multipurpose Facility Events and Event Attendance
Fiscal Years 2007 through 2011
(Unaudited) 35
8 Original Projection, January 2004 Projection, and Actual Facility Construction
and Development Costs by Funding Source
As of June 30, 2010
(In Millions) 43
9 Schedule of Estimated Costs to Repay Authority’s
Obligated Senior Bonds
Through July 1, 2036, as of June 30, 2010
(In Millions) 44
10 Actual and Projected Senior Bond and Subordinate Bond Coverage Ratios
through Fiscal Year 2016
As of June 30, 2010 47
11 Facility Manager Fee Schedule
August 11, 2006 through June 30, 2013 52
12 Cactus League Completed Projects, Project Costs, and Funding Sources
Fiscal Years 2002 through 2010
(In Millions)
(Unaudited) 59
13 Cactus League Financial Assistance, Planned Commitments, and
Projected Tourism Revenue Shortfall
As of January 2010
(In Millions)
(Unaudited) 63
14 Cactus League Funding Prioritizations
As of June 30, 2010 64
State of Arizona
TABLE OF CONTENTS
concluded
page vi
Tables (Continued)
15 Authority’s Projected Cactus League Facility Renovation Contributions
Fiscal Years 2020 through 2027
(In Millions)
(Unaudited) 65
16 Cactus League Operating and Maintenance Contributions
As of June 30, 2010 c-ii
17 Initial and Biennial Grants Projects Funded or Awarded for Youth and
Amateur Sports
August 9, 2000 through June 30, 2010 d-ii
18 Quick Grants Projects Funded for Youth and Amateur Sports
August 9, 2000 through June 30, 2010 d-viii
Figures
1 Revenue Distributions in Statutory Priority Order 7
2 Selected National State Auditors Association Best Practices in
Contracting for Services 18
3 Authority and Facility Operating Expenses
Fiscal Years 2007 through 2010 29
4 Comparison of Projected to Actual Tax Revenues
Fiscal Years 2002 through 2010 38
INTRODUCTION
& BACKGROUND
The Office of the Auditor General has conducted a special audit of the Arizona Sports
and Tourism Authority (Authority) pursuant to Laws 2010, Ch. 5. Established by the
Legislature in 2000 and approved by Maricopa County voters in November of that
same year, the Authority has the following four responsibilities:
• Maintaining, operating, improving, and marketing/promoting the use of the
University of Phoenix Stadium, a multipurpose event facility in Glendale that
serves as the home for the Arizona Cardinals National Football League football
team (Cardinals), the Fiesta Bowl football games, and other events;
• Distributing monies to the Arizona Office of Tourism for tourism promotion;
• Attracting and retaining Major League Baseball Cactus League spring training
operations in Maricopa County; and
• Reviewing, approving, and funding grants for youth and amateur sports facilities
and programs within Maricopa County.
This special audit, conducted under the authority vested in the Auditor General by
Arizona Revised Statutes (A.R.S.) §41-1279.03, addresses a number of issues raised
in an earlier March 2009 performance audit of the Authority (see Auditor General
Report No. 09-04). The issues addressed in the March 2009 performance audit
included the Authority’s financial situation and projected shortfalls in revenues and
limited oversight of the facility manager that operates the multipurpose facility. For
this special audit, the Legislature directed the Office of the Auditor General to
address the following areas:
• The Authority’s procurement processes for contracts entered into during
calendar years 2008 and 2009, as well as the Authority’s concessionaire and
event management contracts, which the Authority entered into in February 2010
(see Chapter 1, pages 15 through 25).
• The Authority’s financial situation, cash flow projections, and options available
to increase its revenues or decrease expenses (see Chapter 2, pages 27
through 40).
Office of the Auditor General
page 1
• The Authority’s current and continuing ability to meet its bond obligations, and
bondholders’ legal recourses if the bond obligations are not met (see Chapter
3, pages 41 through 48).
• The Authority’s oversight of the facility manager, including a review of the facility
manager’s incentive fee structure (see Chapter 4, pages 49 through 56).
• The Authority’s contractual obligations for financing Cactus League commitments,
as well as the cities’ and teams’ financial participation (see Chapter 5, pages 57
through 66).
• The Authority’s policies for funding youth and amateur sports programs within
Maricopa County (see Chapter 6, pages 67 through 75).
Where applicable, this audit also makes recommendations for improvement. The
remainder of this Introduction and Background provides information about the
Authority’s responsibilities, funding, legislatively mandated funding priorities, and
organization.
Multipurpose facility and operations
One of the Authority’s largest responsibilities is the multipurpose facility (facility). As
required by A.R.S. §5-807, the Authority constructed a multipurpose facility in
Glendale named the University of Phoenix Stadium. This facility, which began
operations in August 2006, serves as the home for the Arizona Cardinals National
Football League football team and Fiesta Bowl football games. The facility also hosts
other sporting events, concerts, motorsports events, trade and consumer shows,
meetings, and banquets. It is an enclosed air-conditioned structure with a retractable
roof and a retractable natural grass playing surface. It has approximately 63,400
permanent seats and is expandable to 72,200 seats. The Authority has entered into
the following contracts and agreements to help operate the multipurpose facility:
• Facility operations—The Authority contracts with a facility management
company (facility manager) to provide comprehensive facility management and
operating services. The facility manager is responsible for day-to-day facility
operations, including marketing, maintenance, and security, and managing the
contractor that operates concessions. The facility manager has reduced its full-time
employees from 54 in fiscal year 2009 to 32 as of June 30, 2010,
representing a nearly 41 percent reduction in staffing. In addition, the facility
manager hires part-time staff, specialists, and/or subcontractors, as needed, to
manage and operate the facility.
The Authority constructed
and operates the University
of Phoenix Stadium.
State of Arizona
page 2
• Concessions and event management agreements—Using competitive
procurement practices, in February 2010, the Authority and the Cardinals
entered into a contract with a concessionaire to exclusively provide food and
beverage services at the facility and the Authority also entered into a separate
contract with a second event management company to provide financial
assistance in the form of an assurance of at least $750,000 of annual benefits
to the Authority.1 As of July 2010, the event management company works
together with both the Authority and the facility manager to help increase
revenues and events held at the facility and decrease expenses. Both contracts
are for 2-year terms and may be extended for an additional 1-year period. The
Cardinals and the Fiesta Bowl receive between 47 and 50 percent of the
revenues from gross general concessions sales for their events, and the
Authority receives this percentage for other events at the facility. The
concessionaire retains the remainder of gross sales. The Authority owns all
concessions facilities and equipment.
• Box office operations—Under the Authority’s agreement with the Cardinals,
Cardinals staff operate the facility box office for most events held at the facility,
but promoters may provide their own staffing on event days, and according to
the facility manager, the Fiesta Bowl has established its own box office for its
annual event.
Funding sources
The Authority receives funding from various sources, which is used to satisfy several
bond and statutory funding obligations. Specifically, the Authority receives the
following nonoperating and operating revenues.
Nonoperating revenues:
• Hotel bed tax—Consists of revenue from a 1 percent
increase in the hotel bed tax in Maricopa County.2 The tax
began on March 1, 2001, and will continue through February
28, 2031. From the inception of this tax through June 30,
2010, the Authority has received approximately $115.8
million.
• Car rental surcharge—Consists of a 3.25 percent surcharge
on car rentals in Maricopa County, which also began on
March 1, 2001, and will expire on February 28, 2031. This surcharge replaced a
1 Although these contracts were signed in February 2010, the event management contract terms began in July 2010 and
the concession contract terms began in August 2010.
2 Hotel bed tax rates vary among cities in Maricopa County. For example, as of June 1, 2010, hotel bed taxes were 13.27
percent in Phoenix and as of July 1, 2010, hotel bed taxes were 14.92 percent in Scottsdale, according to information
on each city’s Web site, as of September 2010.
Office of the Auditor General
page 3
Nonoperating revenues—
Revenues generated primarily from
taxes and other revenues not
generated from events held at the
facility.
Source: Auditor General staff review of the
Authority’s financial statements for fiscal
year 2009 audited by an independent
certified accounting firm.
previously existing $2.50 flat surcharge for each car rental contract, which was
distributed to the Maricopa County Stadium District (District) to renovate existing
and construct new Cactus League baseball facilities. Although the first $2.50
from each rental car contract continues to be distributed to the District, in
accordance with a 2003 agreement with the District, the Authority now receives
the District’s rental car surcharge revenues that are not needed to retire the
District’s Cactus League bonds. The Authority will receive the full surcharge
when these bonds are retired in June 2019. According to the agreement, the
Authority can use the District’s portion of the surcharge only for Cactus League
projects. From the inception of this tax through June 30, 2010, the Authority has
received approximately $76.7 million in car rental surcharges and an additional
$4.7 million from the Maricopa County Stadium District.
• National Football League (NFL) income tax—All Arizona state income taxes
paid by the Cardinals’ corporate organization, its employees (including its
players), and their spouses. From the inception of this tax in July 2001 through
June 30, 2010, the Authority has received approximately $41.4 million.
• Sales tax recapture—The State Treasurer distributes to the Authority the base
portion of state sales taxes (5 percent) received from Cardinals games, the
Fiesta Bowl, and all other events held at the facility. The tax began on July 1,
2001, and does not have an expiration date. In addition, according to a 2005
agreement with the Authority, the City of Glendale remits to the Authority the
nondedicated portion of its sales taxes (1.2 percent) resulting from transactions
at the facility in exchange for the Authority using $32.3 million of bond proceeds
for site improvement costs that were the City of Glendale’s responsibility. From
its inception in July 2001 through June 30, 2010, the Authority has received
approximately $47.2 million of sales tax recapture revenues, including nearly
$8.8 million from City of Glendale remittances.
Operating revenues:
• Cardinals rent payments—
According to its agreement with
the Authority, the Cardinals pay
annual facility rent starting at
$250,000 in fiscal year 2007 and
increasing by 2 percent annually
through the term of its 30-year
lease, which expires in fiscal year
2036. The Cardinals have the option to extend this lease a total of six times for
5 years each time. The Cardinals have paid a total of approximately $1 million
page 4
State of Arizona
Operating revenues—
Revenues generated from normal
operations of the facility, such as
facility events.
Source: Auditor General staff review of the
Authority’s financial statements for fiscal
year 2009 audited by an independent
certified accounting firm.
in rent for fiscal years 2007 through 2010 and will pay approximately $271,000
in fiscal year 2011.
• Fiesta Bowl payments—According to its agreement with the Authority, the
Fiesta Bowl pays $2.50 for each Fiesta Bowl ticket sold, and the amount
increases by $0.20 per ticket annually through the term of its 30-year lease,
which expires in 2036. For fiscal year 2011 the amount is $3.30 per ticket. The
Fiesta Bowl has the option to extend this lease a total of six times for 5 years
each time. For fiscal years 2007 through 2010, the Authority has received a total
of approximately $778,000 in payments.
• Other event revenues—The Authority receives rental
payments for using the facility, concession commissions,
and facility-use fees for all events held at the facility except
Cardinals home games (see textbox). The facility-use fee
was established to help generate revenues to retire the
Authority’s $53.1 million bond debt, issued to complete the
multipurpose facility (see Chapter 3, pages 41 to 48 for
additional information), and to reimburse the Cardinals for
certain construction and other costs they incurred that were
not their obligation. Beginning in August 2006, when the
facility opened, the facility-use fee for events with estimated
attendance of 18,000 or more consisted of a $4.25 ticket
surcharge for nongeneral admission seating at events,
including Fiesta Bowl games, increasing by $0.25 annually
until fiscal year 2036. For fiscal year 2011 the fee is $5.25 per
ticket. For events with estimated attendance of less than
18,000 or for all general admission events, the facility-use fee
is $1 per ticket, increasing by $1 every 7 years beginning
August 2006. For fiscal years 2007 through 2010, the
Authority has received a total of approximately $3 million in
facility-use fees.
The Cardinals also collect the facility-use fee on their home games; however,
these monies are deposited into a trust account and, according to the facility-use
agreement, are available for debt service payments on the Authority’s $53.1
million bond debt, but only if certain conditions are met. For fiscal years 2007
through 2010, the Cardinals have received approximately $10.2 million. The
Cardinals received payment from the trust for the $10.2 million because the
Authority received sufficient revenues to meet the $53.1 million bond debt
obligations.1
1 According to the facility-use fee trust agreement, a ratio of 74.9 percent was established to determine whether the
Cardinals’ facility-use fees collected and deposited in the trust would be used to help meet the $53.1 million bond debt
service requirements. The Authority annually determines if it received sufficient revenues to pay 74.9 percent of the
$53.1 million bond debt service requirements. If it received enough monies, then the Authority cannot use the facility-use
fees in the trust account for debt service payments. Any amounts not needed for the debt retirement are annually
paid to the Cardinals.
Office of the Auditor General
page 5
Facility-use fee—
Fee included in the price of each
ticket sold for events held at the
facility. There is a facility-use fee on
Cardinals tickets that the Cardinals
retain if not needed to retire the
$53.1 million bond debt. The
Authority’s facility-use fee is paid
on tickets for its events and is used
to service the $53.1 million bond
debt. As of calendar year 2012, the
proceeds of both fees, less any
amounts needed to retire the $53.1
million bond debt, will be used to
reimburse the Arizona Cardinals for
certain expenses incurred that
were not their obligation.
Source: Auditor General staff review of the
facility-use fee agreement.
Authority’s funding priorities
Statutes establish amounts and a priority order for using the Authority’s revenues.
Specifically, A.R.S. §5-835 requires the Authority to maintain a tourism revenue
clearing account for the hotel bed tax and car rental surcharge revenues. In addition,
A.R.S. §5-834 requires the Authority to maintain a facility revenue clearing account
for all other revenues. These statutes further direct how the Authority must distribute
monies monthly in these accounts and specify that lower funding priorities cannot
receive monies until higher funding priorities are fully funded. Figure 1 (see page 7)
illustrates the funding priorities for both the tourism revenue clearing and facility
revenue clearing accounts. In addition, Table 1 (see page 8) illustrates the December
2009 and June 2010 distribution of the tourism revenue clearing account receipts.
The Authority must use the revenues it receives each month for the following
purposes in priority order:
1. Multipurpose facility construction bond debt service—The Authority must
first use its monthly revenues to satisfy all of its debt service obligations for
bonds it issued to pay for its share of the multipurpose facility’s design and
construction costs before it can fund any of its lower priorities. The Authority
issued $277.6 million in bonds to pay its share of facility construction costs in
addition to other cash payments. Monies from both the tourism revenue clearing
account and the facility revenue clearing account are used to pay for this debt
service obligation. The majority of these bonds will be retired by 2031, but some
bonds will not be fully retired until 2036. The Authority projects that in total it will
pay approximately $550.8 million to retire the bonds in 2036, which includes
principal and interest.
2. Tourism promotion—Statute next requires the Authority to distribute monies
from the tourism revenue clearing account to the Arizona Office of Tourism to
promote tourism in Maricopa County. A.R.S. §5-835 requires the Authority to
distribute $4 million annually beginning June 2001, assuming revenues will be
sufficient to make the full distribution, increasing at 5 percent each year. As of
June 30, 2010, the Authority had distributed approximately $44 million and
estimates that it will distribute approximately $82.6 million through fiscal year
2016.1
3. Cactus League promotion—Statute then requires the Authority to contribute to
the construction and renovation costs of new and existing Cactus League
baseball spring training facilities to attract new teams and keep existing teams
in Maricopa County. Tourism revenue clearing account monies are used to meet
the required statutory distribution, including debt service payments for bonds
the Authority issued to help construct a new spring training facility. If the tourism
revenue clearing account monies are insufficient to make these debt service
payments, the facility revenue clearing account can be used to help make these
1 Fiscal year 2016 is the last year for which the Authority has made projections for all of its distributions.
Statutes direct how the
Authority must distribute the
revenues it receives.
page 6
State of Arizona
Office of the Auditor General
page 7
Facility Revenue Clearing Account1
Revenue:
• Sales tax recapture
• NFL income tax
• Facility-generated revenue (revenue from
events held at the multipurpose facility)
Multipurpose facility construction bonds debt service—
Principal and interest payments on debt
Tourism promotion—$4 million for the first 12 months
beginning June 2001; amount increases by 5% annually
Cactus League promotion—$3 million allocated annually
for the first 7 years beginning June 2001; annual allocation
increases up to $11 million annually for the last 4 years;
includes principal and interest payments on Cactus League
facilities bonded debt
Youth and amateur sports—$1 million allocated for the
first 12 months beginning June 2001; amount increases by
$100,000 annually
Arizona Sports and Tourism Authority operations,
including facility operations
Reserves—Any money remaining after operating costs are
paid is directed into three reserve accounts:
• Youth and Amateur Sports
• Operating
• Capital
Distribution Priorities
Figure 1: Revenue Distributions in Statutory Priority Order
Tourism Revenue Clearing Account
Revenue:
• 1% hotel bed tax
• 3.25% car rental surcharge
1 Revenue in the Facility Revenue Clearing Account is used first to make principal and interest payments on the multipurpose
facility bonded debt, then for the Authority’s Cactus League baseball facilities bonded debt if the Tourism Revenue Clearing
Account lacks sufficient monies to make these payments. Any Facility Revenue Clearing Account monies not needed for debt
payments are available for authority operations, including operating and capital reserves.
Source: Auditor General staff analysis of A.R.S. §§5-834, 8-835, and 5-836.
State of Arizona
page 8
payments.
For example, as shown in Table 1, in December 2009, the Authority did not have
sufficient tourism revenue clearing account receipts to meet its monthly Cactus
League bond debt service requirements; therefore, the Authority used the facility
revenue clearing account to meet the monthly debt service requirement.
Statute requires the Authority to spend $205 million beginning June 2001
through 2031 for Cactus League promotion if sufficient revenues are available.
As of June 30, 2010, the Authority had distributed approximately $29.1 million
for Cactus League promotion from its tourism and facility revenue clearing
accounts. The Authority also distributed approximately $4.7 million for Cactus
league promotion that it received from the Maricopa County Stadium District
(District). Under an agreement with the District, the Authority receives monies
that the District does not need to retire its bond debt. The Authority projects
distributing approximately $32.4 million from its tourism and facility revenue
Table 1: Examples of Monthly Distributions from the Tourism Revenue Clearing Account
December 2009 and June 2010
1 The Authority did not have sufficient Tourism Revenue Clearing Account receipts to meet the monthly statutorily required distribution in
December 2009. Because the Authority issued subordinate bonds to help construct a new spring training facility, it must fund its bond
debt service requirements. Consequently, it distributed approximately $302,000 from its Facility Revenue Clearing Account to meet the
requirements.
2 Amount is based on one-twelfth of the Authority’s adopted fiscal year 2010 budget in accordance with A.R.S. §5-835(B)(5).
3 Monthly statutorily required distribution amount is the amount required if the youth and amateur sports reserve is not fully funded.
According to the Authority’s records, the Authority was evaluating the reserve on an annual basis rather than a monthly basis; however,
in November 2010, the Authority adjusted the June 2010 distribution to properly distribute to the reserve the required amount. See
Chapter 2, pages 27 through 40, for additional information.
4 The statute does not specify monthly requirements for these reserves.
Source: Auditor General staff analysis of A.R.S. §§5-835 and 5-838, and the Authority’s fiscal year 2010 general ledger and November 2010
adjusting entry.
Tourism Revenue Clearing Account receipts $ 1,005,154 $ 3,216,166
Distributions:
Multipurpose facility construction bond debt service $ 783,100 $ 783,100 $ 7 83,100
Tourism promotion (December) 222,054 4 92,485
Tourism promotion (June) 517,109 5 17,109
Cactus League promotion - 1 333,333 3 33,333
Youth and amateur sports (December) 1 50,000
Youth and amateur sports (June) 158,333 1 58,333
Operations 867,036 8 67,036 2
Youth and amateur sports reserve (December) 1 41,667 3
Youth and amateur sports reserve (June) 150,000 1 50,000 3
Operating reserve 407,255 NA 4
Capital reserve NA 4
Total distribution $ 1,005,154 $ 3,216,166
Required
Distribution if
Revenues Are
Sufficient
Priority Distribution
December
2009
June
2010
Office of the Auditor General
page 9
clearing accounts and approximately $4 million that it projects receiving from the
District for Cactus League promotion for fiscal years 2011 through 2016.
4. Youth and amateur sports—After Cactus League promotion, statute requires
the Authority to fund youth and amateur sports facilities and programs with
tourism revenue clearing account monies. A.R.S. §5-835 required initial annual
funding of $1 million beginning June 2001, increasing by $100,000 each year,
and will require the Authority to spend $73.5 million promoting youth and
amateur sports through fiscal year 2031 if sufficient revenues are available. As
of June 30, 2010, the Authority had distributed approximately $11.8 million and
estimates it will distribute approximately $17.6 million through fiscal year 2016.
5. Operations and administration—After funding the previous priorities, statute
requires funding the Authority’s approved annual operating budget; including
the facility’s annual operating budget. Specifically, as shown in Table 1 (see
page 8), the operations account does not receive a monthly distribution from the
tourism revenue clearing account until all higher priorities have been fully
funded. Similarly, the operations account does not receive a monthly distribution
from the facility revenue clearing account until all of the bonds have been fully
funded. The approved operating budget for fiscal year 2011 is approximately
$11 million.
6. Youth and amateur sports reserve—After operations, statute requires the
Authority to fund a reserve account for youth and amateur sports. Beginning in
May 2002, monies in this account must equal the previous year’s required
distribution amount, if sufficient revenues are available to meet this requirement.
As of June 30, 2010, the Authority has distributed approximately $1.9 million to
this reserve. However, the Authority has evaluated the reserve on an annual
basis rather than monthly, as required by statute (see Chapter 2, pages 27 to
40).
7. Operating account, including reserves—If monies remain after meeting the
previous priorities, according to statute, the Authority must deposit any
unallocated monies in its operating account. Statute requires the Authority to
establish two reserves in its operating account, one for operations and one for
repairs and other long-term multipurpose facility costs. Both tourism and facility
revenue clearing account monies contribute to these reserves. Although statute
does not establish a reserve amount for operations, the Authority’s goal is to
maintain an operations reserve equal to the prior year’s operating budget. As of
June 30, 2010, monies held in reserve for operations totaled nearly $9 million.
The Authority projects that this reserve will be reduced by approximately $7.7
million between fiscal years 2011 and 2014 because of revenue shortfalls (see
Chapter 2, pages 27 to 40).
Statute requires the
Authority to fund reserves
for youth and amateur
sports, operations, and
multipurpose facility repair,
replacement, and removal
costs.
State of Arizona
page 10
Further, statute directs the Authority to establish a reserve of $25 million adjusted
for inflation each year after 2001 for facility repair, replacement, and removal
costs. However, the Authority reported that revenues have been insufficient to
fund this reserve.
Beginning in fiscal year 2010, the Authority did not receive sufficient revenues to
make monthly maximum statutorily required distributions for tourism promotion,
Cactus League promotion, youth and amateur sports, operations, and required
reserves. For example, as shown in Table 1 (see page 8), the Authority did not have
sufficient tourism revenue clearing account monies to meet all of the maximum
statutorily required distributions in December 2009. It projects similar outcomes
through fiscal year 2016. See Chapter 2, pages 27 to 40, for information on the
Authority’s revenue shortfall.
Authority’s financial activities
As shown in Table 2 (see page 11), the Authority’s assets at June 30, 2010, included
$426.7 million of net capital assets and $31.3 million of cash and cash equivalents
that compose approximately 97 percent of total assets. Its net capital assets included
the cost of the University of Phoenix Stadium building, land where the facility sits, and
furniture and equipment, less accumulated depreciation. Of the $31.3 million cash
and cash equivalents, only approximately $8.9 million was available for its general
operations and about $700,000 was designated for facility operations. The remaining
$21.7 million was restricted for bond debt service payments and a bond reserve,
youth and amateur sports distribution, tourism and facility revenue clearing account
distributions, and ticket sales held for promoters.
Table 2 (see page 11) also illustrates that more than 97 percent of the Authority’s total
liabilities at June 30, 2010, included the following:
• $320.4 million of bond-related liabilities, including principal and interest for the
senior and subordinate bonds issued for the University of Phoenix Stadium and
Cactus League promotion, respectively, and
• $136.7 million of Cactus League commitments to the Cities of Tempe,
Scottsdale, Glendale, and Goodyear to fund part of the construction or
renovation costs for their Cactus League team spring training facilities.
As shown in Table 3 (see page 12), the Authority received $34.5 million from non-operating
revenues in fiscal year 2010. Nearly all of these revenues comprised hotel
bed taxes, car rental surcharges, sales tax recapture, and NFL state income taxes.
Also, as shown in Table 3, the Authority’s nonoperating expenses during fiscal year
2010 were as follows:
• $16.3 million for bond interest and related expenses;
Office of the Auditor General
page 11
Table 2: Schedule of Net Assets
As of June 30, 2008, 2009, and 2010
(In Millions)
1 Consists of monies received that have not been distributed for statutory funding priorities as described on pages 6 through
10.
2 Beginning in fiscal year 2009, as a result of the implementation of a new accounting standard, the amount includes a liability
for the value of the Authority’s senior variable bond swap agreement that it entered to protect against interest rate increases.
Because interest rates have fallen significantly in the past years, the agreement had a negative fair value to the Authority
resulting in a liability of approximately $3.9 and $6.9 million at June 30, 2009 and 2010, respectively.
Source: Auditor General staff analysis of the Authority’s fiscal year 2009 and 2010 financial statements audited by an independent
certified public accounting firm; fiscal years 2008 through 2010 general ledgers; fiscal year 2009 University of Phoenix
Stadium financial statements audited by an independent certified public accounting firm; and fiscal year 2010 Working
Trial Balance reports for the Authority and the University of Phoenix Stadium.
Assets:
Cash and cash equivalents -
Restricted for bond reserve and payments $ 12.3 $ 14.3 $ 14.8
Restricted for youth and amateur sports 3.8 3.7 3.6
Restricted for Tourism and Facility
Revenue Clearing Account distributions 1 3.3 2.6 3.1
Restricted ticket sales held for promoters 4.2 0.2
Restricted for construction 0.3
Designated for facility operations 0.2 0.5 0.7
Unrestricted general operating 8.9 5.4 8.9
Total cash and cash equivalents 28.8 30.7 31.3
Capital assets, net of accumulated depreciation 457.7 442.2 426.7
Deferred bond issue costs, net 8.9 8.4 7.9
Hotel tax, car rental surcharge, and sales tax
recapture receivables 4.9 4.1 5.6
Other 0.8 0.7 0.8
Total assets 501.1 486.1 472.3
Liabilities:
Bond-related 2 319.2 321.6 320.4
Cactus League payable 128.6 130.6 136.7
Arizona Cardinals payable 6.9 7.2 7.6
Accounts payable and accrued expenses 3.2 5.9 2.0
Youth and amateur sports payable 3.8 1.9 2.3
Other 1.3 0.7 1.7
Total liabilities 463.0 467.9 470.7
Net assets $ 38.1 $ 18.2 $ 1.6
2008 2009 2010
State of Arizona
page 12
Table 3: Schedule of Revenues, Expenses, and Changes in Net Assets
Fiscal Years 2008 through 2010
(In Millions)
1 Amounts include event revenues and expenses, including monies collected at events that are paid to event promoters.
2 Amount is less than $50,000 and does not appear in this table because amounts are shown in millions.
3 Amounts include amortization of deferred bond issue costs and various fees related to the Authority’s variable interest
rate bonds. Beginning in fiscal year 2009, it also includes the change in fair value for the Authority’s senior variable bond
swap agreement. See footnote 4 below for additional information.
4 Amount is an adjustment the Authority made to implement a new government accounting standard. The effect of
implementing the standard is that, beginning in fiscal year 2009, the Authority now reports the changes in fair value for
its senior variable bond swap agreement.
Source: Auditor General staff analysis of the Authority’s fiscal years 2009 and 2010 financial statements audited by an
independent certified public accounting firm; fiscal years 2008 through 2010 general ledgers; and fiscal year 2010
Working Trial Balance reports for the Authority and University of Phoenix Stadium.
Operating revenues and expenses:
Stadium revenues 1 $ 13.1 $ 10.3 $ 23.2
Less: stadium expenses 1 22.7 19.9 28.2
Operating loss before depreciation
and authority operating expenses 9.6 9.6 5.0
Depreciation 15.6 15.6 15.5
Authority operating expenses 1.2 1.1 1.1
Operating loss 26.4 26.3 21.6
Nonoperating revenues:
Hotel bed taxes 15.1 12.4 11.5
Rental car surcharges 10.3 8.8 9.3
Sales tax recapture 6.5 7.2 7.3
NFL income taxes 4.1 4.2 6.4
Other 1.0 0.6 - 2
Total nonoperating revenues 37.0 33.2 34.5
Nonoperating expenses:
Bond interest and other related expenses 3 16.5 18.4 16.3
Cactus League facility expense 6.2
Other interest 1.8 3.6 6.3
Arizona Office of Tourism distribution 5.4 5.7 5.3
Youth and amateur sports awards 2.0 - 2 1.6
Total nonoperating expenses 31.9 27.7 29.5
Net nonoperating revenues 5.1 5.5 5.0
Decrease in net assets 21.3 20.8 16.6
Net assets, beginning of year 59.4 38.1 18.2
Restatement, change in accounting policy 4 0.9
Net assets, end of year $ 38.1 $ 18.2 $ 1.6
2008 2009 2010
Office of the Auditor General
page 13
• $6.3 million for other interest accrued for Cactus League promotion and youth
and amateur sports owed to cities; and
• $6.9 million for tourism promotion and youth and amateur sports grants.
Table 3 also shows that the Authority did not have sufficient facility operating revenues
to cover the related operating expenses in fiscal years 2009 and 2010, which resulted
in an operating loss of $9.6 million and $5 million, respectively, before depreciation
and authority operating costs. The Authority used its nonoperating revenues and
operating reserve to both fund the facility operating losses and pay for its own annual
operating expenses of approximately $1.1 million for fiscal years 2009 and 2010.
Organization and staffing
The Authority is governed by a nine-member board of directors. The Governor
appoints five board members who represent the tourism industry, hotel and motel
industry, youth sports organizations, and Major League Baseball spring training
organizations. The Senate President and House Speaker each appoint two members
who cannot both be from the same political party. All members serve 5-year terms
and may be reappointed for one full subsequent term.
As of October 9, 2010, the Authority had two full-time employees and a contracted,
part-time consultant. Specifically, the Authority has a president/chief executive officer
and an office manager who are employees of the Authority. The Authority also uses
a part-time consultant as its chief financial officer. The Authority mainly uses
contracted services for managing, promoting, operating, and maintaining the facility
and uses outside legal representation.
Scope and objectives
Laws 2010, Ch. 5, directed the Office of the Auditor General to review and analyze
17 specific areas related to authority responsibilities and operations. Appendix A
(see pages a-i through a-ii) contains the complete list of these 17 areas. Auditors
addressed these 17 items in the following 6 chapters. Where applicable,
recommendations have been made in the chapters.
The methods used to develop and analyze the information discussed in this report
are discussed in Appendix E (see pages e-i through e-iii).
The Auditor General and staff express appreciation to the Authority’s Board of
Directors, Chief Executive Officer, and staff for their cooperation and assistance
throughout the audit.
State of Arizona
page 14
Concessions procurement largely adhered to
best practices; additional policies and
procedures to guide future procurements would
be helpful
The Arizona Sports and Toursim Authority (Authority) has
established a procurement policy, and more comprehensive
procurement policies and procedures could help ensure that
future procurements consistently adhere to procurement best
practices. The Authority is not required to follow the State’s
procurement laws and has instead established a procurement
policy that specifies when it will issue a request for proposals
(RFP) and that it will monitor all contracts. Additionally, following
procurement best practices can help produce quality contracts.
Auditors reviewed the Authority’s procurement of concessionaire
services and financial assistance awarded in February 2010
and found that it largely adhered to procurement best practices.
For example, the Authority developed and issued an RFP that
addressed its business needs and also used an appropriate
evaluation process. However, the RFP did not specify the
weighting factors that would be used to evaluate the proposals.
Auditors’ review of other selected contracts the Authority
entered into between 2000 and 2009 also identified some
deviations from procurement best practices. To help ensure that
its future procurements consistently adhere to procurement
best practices, the Authority should adopt and implement
additional procurement best practices.
Authority has its own procurement policy
As a separate legal body from the State, the Authority is exempt from some
requirements that state agencies must follow, including state procurement laws.
Specifically, A.R.S. §5-802 established the Authority as a separate legal body with all
Office of the Auditor General
page 15
Legislative audit mandate
The audit shall review and evaluate:
• All contracts entered into by the
Authority during calendar years
2008 and 2009, including
contracts with concessionaires
and other providers of food,
beverage, and other services at
the multipurpose facility
constructed pursuant to Arizona
Revised Statutes (A.R.S.) §5-807.
• The procurement process used
by the Authority for soliciting bids
from vendors and awarding
contracts for acquiring materials,
services, construction or
construction services, including a
description of requirements,
selection and solicitation of
sources, preparation and award
of contracts, and all phases of
contract administration.
Chapter 1
As a separate legal body
from the State, the Authority
is exempt from following
state procurement laws.
of the rights, powers, and immunities of a municipal corporation.
Although the Authority must comply with open meeting and public
records laws, its status as a separate legal body exempts it from other
requirements that state agencies must follow.
In its March 2004 performance audit of the Authority, the Office of the
Auditor General recommended that the Authority establish policies and
procedures to guide its procurement activities (see Auditor General
Report No. 04-01). Specifically, the 2004 audit found that the Authority
had entered into several agreements totaling millions of dollars of
services, yet did not have a formal procurement process. In response to
this recommendation, the Authority adopted the procurement policy
shown in the textbox.
As illustrated in Table 4 (see page 17), the Authority entered into six new
contracts between January 1, 2008 and June 30, 2010. As of June 30,
2010, the Authority had paid a total of $566,058 for the services provided
through these contracts. Further, the Authority estimated that the two
contracts it entered into in February 2010, which do not require payment
from the Authority but instead provide revenues to the Authority, would
be valued at a minimum of $1.25 million annually, as stipulated in the
contracts.
Following procurement best practices can
help produce quality contracts
Other organizations, including Arizona state agencies and municipalities
that are not required to follow state procurement statutes and regulations,
have procurement policies that are more detailed and prescriptive than
the Authority’s policy. These more detailed policies generally incorporate
a set of “best practices,” such as those outlined by the National State
Auditors Association (NSAA) or required by Arizona procurement code,
which help government entities to conduct effective and efficient
procurements that can lead to quality contracts. For example, best
practices established by the NSAA help organizations or government
entities to evaluate existing contracting policies and procedures and
determine which practices are more likely to result in an efficient, effective, and
accountable procurement process.1 Following best practices, like those
recommended by the NSAA or the state procurement code, helps to ensure the
highest-quality product or service is received at the most economical price, and
helps to ensure fair competition, prevent fraudulent activities, and protect the entity
from the appearance of fraud. Additionally, Arizona’s Administrative Code, Title 2, Ch.
7 (Arizona procurement code), includes detailed examples of best practices
1 National State Auditors Association. (2003) Contracting for services: A National State Auditors Association best practices
document. Lexington, KY: Author.
State of Arizona
page 16
e
Authority procurement policy
The Authority’s procurement policy
specifies that the Authority:
• Issue an RFP when contracting
for general goods or services that
have either a total acquisition or
contract value of $25,000 or
more. If the Authority determines
that the services are specialized
or competition is not practicable,
the Authority will not issue an
RFP. In these cases, the Authority
will use written quotes or other
documentation to support its
decision.
• Will not issue an RFP for goods
and services with a contract value
totaling $25,000 or less that are
included in the Authority’s annual
adopted budget. In situations
where an RFP is not issued, the
Authority will instead use written
or verbal quotations to prove that
a competitive price was obtained.
• Authorizes the Chief Executive
Officer to enter into contracts up
to $100,000 without prior Board of
Directors (Board) ratification.
These contracts/agreements are
due to the Board at the next
board meeting following the
contract’s execution.
• Will monitor all contracts entered
into and verify that, prior to
making contractual payments, the
goods/services have been
provided/received according to
the terms and conditions set forth
in the contract.
Source: Auditor General staff review of the
Authority’s procurement policy no. 300.01.
procedures that most Arizona state agencies are required to use. Figure 2 (see page
18) lists several procurement best practices that auditors reviewed, including
procedures for developing and issuing a Request for Proposal (RFP), evaluating
contract proposals, and developing and monitoring the contract.
Concessions procurement followed Authority’s policy
and largely adhered to best practices
The Authority’s most recent procurement of concessionaire services for the
multipurpose facility, which culminated in the issuance of two contracts in February
2010, largely adhered to procurement best practices reviewed by auditors. In 2009,
the Authority decided to issue an RFP for both its concessionaire services and to
assist in improving its financial situation. Auditors’ review of this procurement
determined that the Authority’s process largely adhered to procurement best
practices, including the use of an evaluation review team and evaluation instrument.
Office of the Auditor General
page 17
Table 4: Contracts Entered into Subsequent to January 1, 2008
As of June 30, 2010
1 Amounts paid by the Authority on these contracts between January 1, 2008 and June 30, 2010.
2 Amount is the CEO’s annual compensation and includes a car allowance. The total amount paid by the Authority since the CEO began
working for the Authority in June 2008 through June 30, 2010 is $356,250.
3 In addition to this amount, the Authority paid $2,940 to this consultant in February 2009 for his review of the Authority’s concessions
contract.
4 Amount is an advance against future concessions revenues that was paid to the Authority during fiscal year 2010 after the contract was
signed. In addition, the concessionaire provided a $1 million zero-percent interest rate loan that may not have to be repaid. See Chapter
2, pages 28 to 30, for additional information.
5 Amount is the guaranteed operational revenue increases and/or cost reductions that the event manager, an affiliate of the concessions
vendor, agreed to provide to the Authority annually. This contract is only effective as long as the concessionaire contract is effective. See
Chapter 2, page 30, for additional information.
Source: Auditor General staff review of the Authority’s fiscal years 2008 through 2010 general ledger; new contracts entered into between
January 1, 2008 and June 30, 2010; and an authority-prepared contract listing.
Date
Contract Type Signed
Chief Executive Officer (CEO) June 24, 2008 $ 171,000 2
Lobbyist/Public Relations/Commuity Outreach April 15, 2009 96,000
RFP consultant August 4, 2009 12,435 3
Interim Chief Financial Officer October 29, 2009 101,373
Concessionaire February 9, 2010 $ 500,000 4
Event management February 9, 2010 750,000 5
to Authority
Amount
Impact to Authority
Amount
Advanced or
Paid by Guaranteed
Authority1
However, this procurement also deviated from two best practices. For example, the
Authority did not include specific evaluation weighting factors for the criteria in its RFP
and did not follow best practice recommendations for the receipt/opening of
proposals.
Authority determined new concessionaire services contract could
help financial situation—As reported in the Office of the Auditor General’s
March 2009 performance audit of the Authority (see Report No. 09-04), the
Authority was facing a projected financial shortfall of possibly as much as $29
million by 2014. The Authority had taken various actions, including reducing
operating expenses, to begin to address its financial situation. According to
page 18
State of Arizona
Figure 2: Selected National State Auditors Association Best Practices in
Contracting for Services
Source: Auditor General staff review of selected best practices from National State Auditors Association. (2003).
Contracting for services: A National State Auditors Association best practices document. Lexington, KY: Author.
reports for the Authority and the University of Phoenix Stadium.
Request for Proposal (RFP) process—Allows the agency to define the acquisition and proposal
evaluation process. The RFP should:
􀁸􇡉 Identify and address the business needs;
􀁸􇡓 State the performance requirements, scope of services, evaluation criteria, and weighting
factors;
􀁸􇡁 Avoid specifications that favor a particular bidder or brand; and
􀁸􇡄 Define communication procedures to ensure potential bidders have access to the same
information.
Award decision process—Ensures vendor proposals are responsive to the agency’s needs, are
consistently and objectively evaluated, and that contracts are awarded fairly. The award process
should:
􀁸􇡉 Include a proposal receipt process that ensures that proposals are not opened
prematurely and not accepted after the due date;
􀁸􇡕 Use an evaluation review team comprising individuals trained to evaluate and score the
proposals and free of impairments to independence.
􀁸􇡕 Use fixed, clearly defined, and consistent scoring scales to measure the proposal against
the criteria specified in the RFP; and
􀁸􇡄 Document the award decision and keep supporting materials.
Contract provisions—Protect the interests of the agency; identify the responsibilities of the
parties to the contract; define what is to be delivered; and document the mutual agreement,
substance, and parameters of what was agreed upon. Specifically, the contract should:
􀁸􇡄 Define the scope of work, contract terms, allowable renewals, and procedures for any
changes;
􀁸􇡐 Provide specific measurable deliverables and reporting requirements; and
􀁸􇡄 Describe the methods of payment and payment schedules.
Monitoring—An essential part of the contracting process; provides assurance that the agency
receives what it contracts for. Monitoring ensures that:
􀁸􇡃 Contractors comply with contract terms;
􀁸􇡐 Performance expectations are achieved; and
􀁸􇡐 Problems are identified and resolved.
authority officials, the Authority also began considering additional options to
address its financial situation, including using its concessionaire contract. After
considering various alternatives, on July 20, 2009, the Authority’s Board of
Directors directed its staff to develop a competitive RFP for concessionaire
services and financial assistance. See Appendix B, pages b-i through b-iii, for
additional information on events leading to the issuance of the RFP.
Authority’s concessions and financial assistance procurement
process largely adhered to procurement best practices reviewed
by auditors—As directed by its Board, in August 2009, the Authority initiated a
competitive procurement process for concessionaire services and financial
assistance. Auditors reviewed the Authority’s RFP process and determined that it
largely adhered to procurement best practices. Specifically, the Authority:
• Developed an RFP consistent with its business needs—Consistent with
best practices, the Authority developed an RFP that addressed the Authority’s
business needs and specified both the scope of services to be provided and
expected performance requirements. For example, the RFP objectives clearly
stated a requirement for continued excellence in concession services for all
facility partners, as well as financial assistance for the Authority. Additionally,
the Authority specified the scope of work within the RFP by requiring all
proposals to comply with the same general terms/conditions in the existing
concessions contract and made the existing concessions contract available to
proposers. Also consistent with best practices, the Authority’s RFP avoided
specifications that favored a particular bidder or brand and defined
communication procedures to help ensure bidders had equal access to
information. Further, to ensure equal access to information, the Authority
restricted all questions and answers regarding the RFP to a public forum
through its Web site and implemented standardized facility tours for potential
bidders. Finally, in preparation for the finalists’ oral presentations, written
directions from authority staff to its board members specified that all
discussions regarding proposals were prohibited outside of board meetings.
• Used an appropriate evaluation process—The Authority’s evaluation
process consisted of selecting a bid review team, developing an evaluation
instrument, scoring the proposals and recommending finalists, hearing oral
presentations, and determining the final award. Specifically:
° Bid review team complied with best practices—The Authority’s bid
review team (review team) complied with guidelines recommended by the
NSAA. Specifically, the NSAA recommends using an evaluation review
team comprising individuals who are trained to evaluate and score the
proposals and who are free of impairments to independence. The
Authority’s review team, which developed the evaluation instrument and
the instructions for its use, consisted of three members—the Authority’s
Chief Executive Officer (CEO) and its interim Chief Financial Officer (CFO),
and an independent consultant. The review team was responsible for
The Authority developed a
concessions and financial
assistance RFP that
addressed its business
needs and specified the
scope of services and
performance requirements.
Office of the Auditor General
page 19
evaluating bids, and the independent consultant was also responsible for
making a final award recommendation to the Board.
° Review team developed appropriate evaluation instrument—Consistent
with procurement best practices recommended by the NSAA, the
Authority’s bid review team developed an evaluation matrix that was based
on RFP requirements and used consistent scoring scales. Specifically, the
Authority’s RFP required respondents to address questions and provide
evidence regarding the respondent’s financial situation and operational
performance, and also required the submittal of several supporting
documents. The review team used these three categories as the criteria in
the matrix it developed to evaluate the proposals received by the Authority
(see textbox).
In addition, the NSAA recommends the use of a fixed, clearly defined,
and consistent scoring scale for evaluation. The review team’s evaluation
matrix was designed to assess proposals against the criteria using a 1
to 5 scoring scale, with the rating of 5 indicating an excellent response,
and a rating of 1 indicating a poor response. Each bid review team
member could also provide clarifying notes for scores given and scores
were totaled to arrive at a ranking for each proposal.
° Bid review team appropriately reviewed proposals—Auditors’ review of
the review team’s proposal evaluation process determined that the
process appeared to be appropriate. Specifically, the review team used the
evaluation instrument discussed previously to evaluate the proposals
received. During the first evaluation phase, which took place between
August and December 2009, the team members were initially required to
independently review and score each of the proposals received.
page 20
State of Arizona
Criteria used in evaluation instrument
The types of criteria used to evaluate proposals included:
• Financial criteria—Consists of the respondent’s financial assistance options
proposed; proof of the respondent’s ability to fulfill proposed assistance; the ability to
provide excellent concessions services to all facility partners; and compliance with the
Authority’s IRS and tax-exempt bond requirements.
• Operational criteria—Consists of the number of years the respondent had been in
operation; organizational stability relative to mergers or acquisitions; the number and
types of facilities currently under contract and length of contracts; history of the
organization’s growth or decline; and the creativity of the operational plan relative to
the potential for revenue increases.
• Compliance with RFP requirements—Consists of an evaluation of the quality of
items required by the RFP and provided in the proposal, such as letters of
recommendation, audited financial statements, and a list of corporate officers with a
summary of their related food service industry experience.
Source: Auditor General staff review of the Authority’s concessionaire proposal evaluation instruments.
Office of the Auditor General
page 21
Independently scoring the proposals with an appropriate evaluation
instrument complies with best practices in that review team members
make their own decisions independent from other members’ decisions.
Later, the individual review team members’ evaluations were compiled into
a final summary to indicate the review team’s ranking for this evaluation
phase.
The review team evaluated five proposals using its evaluation instrument
and the process described above. From this evaluation, the review team
recommended four bidders as finalists, who would move on to make
oral presentations to the full Board.1
° Contracts awarded according to independent consultant’s
recommendation—The review team received the best and final terms
from the RFP finalists on January 15, 2010. In addition, on January 16,
2010, the Authority’s interim CFO analyzed the financial benefits of each of
the best and final offers to determine which of these offers would provide
the best financial assistance to the Authority. On January 20, 2010, the
independent consultant presented his final recommendation for contract
award to the full Board, based on his evaluation of written and oral
presentations, best and final offers, and the interim CFO’s financial analysis
of best and final offers. The consultant stated that all three finalists had the
ability to manage concessions; however, the company he recommended
to the Board for contract award had the most to gain or lose based on
concessions performance and would also provide the best financial
assistance to the Authority.
On January 20, 2010, the Board voted to enter into contract negotiations
for 30 days with the company that the consultant recommended, with
the provision that if a satisfactory contract could not be executed within
that time frame, the Board would enter into a contract with the company
the consultant recommended as his second choice. Within the 30-day
period, the Authority executed two contracts with the recommended
company—one contract to provide concessions services, which was
modeled on the prior concessions contract, and a second, interdependent
contract to provide the Authority financial assistance through additional
event management services.
• Contract provisions comply with best practices—Auditors’ review of the
two contracts that resulted from the concessions RFP process found that
these contracts’ provisions comply with best practices. Specifically, according
to the NSAA’s best practices, contract provisions should define the scope of
work, contract terms, allowable renewals, and procedures for changes;
provide specific measurable deliverables and reporting requirements; and
1 The review team selected four finalists to make oral presentations to the full Board. However, two of these companies
began merger negotiations and decided to make one presentation instead of two. Therefore, there were a total of three
bidders that made oral presentations to the Board.
The two contracts resulting
from the concessions and
financial assistance
procurement adhere to best
practices.
State of Arizona
page 22
describe the methods of payment and payment schedules. Auditors’ review of
the concessions services contract, entered into by both the Authority and the
Cardinals, and the Authority’s event management contract determined that
both meet these selected best practices.
Two best practices not followed—Although most of the Authority’s concessions
procurement process adhered to best practices auditors reviewed, two of its
processes deviated from these best practices. Specifically:
• RFP did not specify evaluation weighting factors—Contrary to best
practices, the Authority’s RFP did not specify the evaluation weighting factors
that would be used to evaluate and eventually award a contract. The purpose
of providing specific evaluation weighting factors in the RFP is to allow all
participants equal access to the factors that will be considered, prior to
submitting a bid, which helps ensure that the entity receives bids that are
responsive to its business needs. Therefore, the Authority should ensure that
all future RFPs contain specific evaluation weighting factors that will be used
to evaluate and award contracts.
• Authority’s proposal receipt process not consistent with best practices—
Although the Authority complied with best practices by clearly identifying in its
RFP a specific date and time to submit proposals, the Authority did not adhere
to other best practices related to proposal receipt and storage. Specifically,
best practices by NSAA and the state procurement code include using a log
to record the receipt of proposals; storing the sealed bids in a secured
location; and opening the proposals in the presence of witnesses. The
Authority did not follow these best practices and could not provide
documentation regarding the opening process that took place. Although the
Authority has only a small number of staff and reported that all proposals were
received prior to the submission deadline, following these best practices for its
future procurements can help to assure the public and bidders that proposals
are received in a timely manner, the proposers’ information remains confidential,
and all bids are opened and considered at the same time.
Additional procurement policies and procedures would
help ensure future procurements also follow best
practices
Auditors’ review of other contracts entered into by the Authority also suggests that
additional procurement policies and procedures would help ensure that future
procurements also follow best practices. Specifically, the Authority should more
closely follow its policy of using competitive procurement processes for all contracted
services that exceed its $25,000 threshold or document the reasons a competitive
Office of the Auditor General
page 23
procurement would be impracticable. Additionally, the Authority should develop and
implement additional procurement policies and procedures that incorporate best
practices recommended by the NSAA to help guide future procurements. These
additional policies and procedures would be especially important given the small
number of authority staff, potential for turnover among the staff, and the infrequent
nature of conducting procurements that would benefit from following procurement
best practices. These new procedures should also ensure that all of its contracts
have specific contract language that defines current payment terms.
Contrary to its policy, Authority did not competitively procure some
services—Auditors reviewed four contracts the Authority entered into during
2008 and 2009, as well as the two contracts the Authority entered into in 2010 as
a result of its concessions procurement process. Additionally, auditors reviewed
the Authority’s contract for its primary legal services, initially entered into in
calendar year 2000. Auditors found that the Authority had used a competitive
procurement process for only two of the five contracts that should have been
competitively bid according to the Authority’s procurement policy. The Authority
did not competitively bid the other three contracts or document the reasons a
competitive procurement would be impracticable. Specifically:
• Primary legal services contract—The Authority spent a total of $604,622 for
its primary legal services during fiscal years 2008 through 2010. This amount
exceeds the $25,000 policy threshold that the Authority has established for
requiring competitive bids. According to authority officials, an RFP for its
primary legal services was not issued because bringing in another legal
services provider would put the Authority at a disadvantage because the
Authority’s primary legal counsel knows the Authority’s history and understands
its complex bond funding and financial obligations. Although the Authority has
a signed contract for the legal services it receives from its primary legal
contractor, this contract is dated August 2000 and the Authority did not provide
any documented or signed updates to this contract after November 2000,
even though there have been changes to its legal services costs.
• Lobbying contract—Likewise, the Authority did not competitively bid for its
lobbying services even though it spent a total of $96,000 for these services in
fiscal years 2009 and 2010. Rather than issuing an RFP for these services, the
Authority obtained these services through three separate contracts, two of
which did not have a termination date. According to authority officials, the
Authority did not issue an RFP for these services because the contracts could
be canceled on a 30-day notice and each 30-day time frame is below the
$25,000 RFP threshold. However, the Authority has incurred costs for at least
one of these contracts in excess of its $25,000 threshold.
• Third-party interim CFO contract—Finally, the Authority contracted with a
financial services company to receive employment services to fill the position
of the Authority’s interim CFO, and from October 21, 2009 through June 30,
The Authority did not
competitively bid some
contracts reviewed by
auditors or document why a
competitive procurement
was not used.
State of Arizona
page 24
2010, the Authority paid nearly $101,400 for these services. According to an
authority official, at that time, a formal RFP process was not practical because
of the pending loss of its CFO, its only business office employee. In an effort
to ensure imperative day-to-day operations continued, the Authority engaged
the services of a well-known financial services firm.
According to the NSAA, “without proper awarding practices, there is little
assurance an agency is selecting the most qualified vendor at the best price.
Further, contracting decisions may not be defendable if challenged.”1 Therefore,
to help ensure that it procures the most qualified vendors at the best price, the
Authority should follow its procurement policies and issue RFPs for contractual
services totaling more than $25,000 or document why a competitive procurement
would be impracticable in these types of situations.
Authority contracts met selected best practices reviewed by auditors,
but one improvement is needed—Auditors assessed the content of the
Authority’s seven contracts against selected NSAA best practices and state
procurement rules and found that these contracts met these recommended best
practices, with one exception. For example, auditors found that the Authority’s
contracts define the term and scope of work; provide specific measurable
performance and reporting requirements; and clearly define compensation,
including incentives or penalties.
However, the Authority’s primary legal services contract, dated August 2000, has
not been updated to reflect revised payment terms, which would be needed by the
Authority to ensure payments are made according to agreed-upon contract
specifications. Neither the Authority nor its primary legal counsel were able to
provide auditors with an updated agreed-upon pricing schedule. Therefore, the
Authority should ensure that all of its contracts have specific contract language
that defines current payment terms.
Authority appropriately monitors its contracts—The Authority’s contract
monitoring appears to be appropriate for its contracts that contain specific
performance requirements, given the limited resources available. The Authority’s
staff consists of two full-time employees (a CEO and an office manager) and a
contracted, part-time, interim CFO. These staff are responsible for monitoring
several contracts. Additionally, the Authority has contracted with a facility manager
that helps the Authority by operating the facility and monitoring contracts that are
specific to facility operations, including the Authority’s 2010 concessions services
contract. For more information about the Authority’s contract monitoring of the
facility manager, see Chapter 4, pages 49 to 56.
The NSAA’s best practices for contract monitoring note that it is an essential part
of the contracting process and provides assurance that the agency receives the
contracted services. Additionally, monitoring ensures that contractors comply with
1 NSAA, 2003, page 2.
Authority contracts reviewed
by auditors define the
scope of the work, provide
measurable performance
and reporting requirements,
and define compensation.
Office of the Auditor General
page 25
contract terms, performance expectations are achieved, and any problems are
identified and resolved. According to authority officials and auditors’ observations,
before contracted work is performed, the services are generally preapproved by
the Authority, and before the contracts are paid, the CEO reviews reports regarding
the description of services provided and hours spent providing the service, some
of which include details down to 15-minute increments of time. The Authority’s
level of oversight appears to be appropriate for most of its contracts. However,
because its contract for primary legal services does not contain specific, up-to-date
payment terms, the Authority’s ability to fully monitor this vendor’s compliance
is limited.
Recommendations:
1.1. The Authority should follow its policies and conduct a competitive procurement
process for each contract with an expected value of $25,000 or more or
document the reasons for not conducting a competitive procurement process.
1.2. The Authority should develop and implement additional policies and procedures
that incorporate procurement best practices recommended by the National
State Auditors Association to help guide its future procurement activities. These
policies and procedures should require that:
a. Requests for proposals (RFP) specify the business needs; scope of work
desired; and the proposal evaluation criteria and weighting factors;
b. The award decision process ensures that proposals are received
appropriately and evaluated objectively. It should also ensure that contracts
are awarded fairly; and
c. Contract provisions define the scope of work, contract terms, allowable
renewals, and procedures for any changes; provide specific measurable
deliverables and reporting requirements; and describe the methods of
payment and payment schedules.
The Authority has
established processes for
preapproving contractor
work and reviewing services
provided before authorizing
payments.
State of Arizona
page 26
Authority has taken steps to improve financial
situation, but still faces challenges
The Arizona Sports and Tourism Authority (Authority) has taken
several steps to address its financial situation but still faces
financial challenges. Specifically, the Authority projects that its
operating reserve will be reduced by approximately $7.7 million
between fiscal years 2011 and 2014 despite steps taken in fiscal
years 2009 and 2010 to improve its financial situation, including
increasing revenues and decreasing expenses. Although
authority-prepared financial projections for fiscal years 2011
through 2016 show that the Authority will receive sufficient
revenue to pay bond debt service, its projected revenues are
insufficient to satisfy all funding priorities, its operating expenses,
and required reserve amounts. The Authority should continue to
take steps to improve its financial condition. Finally, although the
Authority has established a thorough budgeting and forecasting
process to help manage its finances, it faces challenges making long-term revenue
projections, including predicting economic conditions. To enhance its long-term
forecasts, the Authority should continue working with the Office of Tourism and other
tourism industry representatives to develop long-term revenue projections and
create different ranges of growth such as conservative, moderate, and aggressive
scenarios for its tax revenues.
Authority has taken actions, but revenues still insufficient
to satisfy all funding priorities
In fiscal years 2009 and 2010, the Authority took several steps to address its financial
situation. These actions, which included increasing revenues and decreasing
expenses, resulted in a nearly $9 million operating reserve as of June 30, 2010.
However, the Authority still faces financial shortfalls and projects that its operating
Office of the Auditor General
page 27
Legislative audit mandate
The audit shall review and evaluate:
• The options available to the
Authority to increase revenues
and decrease expenses to
address its anticipated deficits
and fund its reserve accounts.
• The adequacy of the Authority’s
cash flow projections in
accurately describing its receipts
and expenses.
Chapter 2
reserve will be reduced by approximately $7.7 million between fiscal years 2011 and
2014.
Authority’s actions have resulted in a nearly $9 million operating
reserve as of June 30, 2010—The Office of the Auditor General’s March
2009 performance audit found that the Authority had financial difficulties and that
it projected depleting all of its operating reserves in fiscal year 2010 (see Auditor
General Report No. 09-04). To address this situation, the Authority took steps that
resulted in a nearly $9 million operating reserve as of June 30, 2010, and it no
longer projects depleting its operating reserve. These steps included:
• Reducing multipurpose facility operating expenses—Similarly, according
to a facility manager representative and an authority official, the Authority has
been working with its facility manager to reduce facility operating expenses,
including reducing full-time positions from 54 in fiscal year 2009 to 32 in fiscal
year 2010 resulting in an approximately 30 percent reduction in payroll
expenses. In addition, the facility manager representative reported that it has
reduced utilities expenses by working with its electric company to run more
efficiently during off-peak hours, installing motion sensor switches for lighting,
and enrolling in a program that allows for selling of excess energy during peak
times. Further, as discussed in Chapter 4, pages 49 to 56, the management
fee for the facility manager was restructured, resulting in a savings of over 57
percent during fiscal year 2010. As shown in Figure 3 (see page 29), the
facility’s recurring operating expenses have decreased from $12.3 million in
fiscal year 2007, the facility’s initial year of operation, to approximately $9.4
million in fiscal year 2010. According to an authority official, the Authority
continues to work with the facility manager to look for additional opportunities
to reduce the facility’s operating expenses.
• Reducing authority operating expenses—The Authority has reduced its own
operating expenses through various actions such as eliminating one full-time
position, replacing a second full-time position with a contracted part-time
consultant, and limiting travel and marketing and promotion activities. As
shown in Figure 3 (see page 29), the Authority reduced its operating expenses
from more than $1.4 million in fiscal year 2007 to approximately $1.1 million in
fiscal year 2010. Additionally, according to authority-prepared projections,
further reductions will decrease operating expenses to less than $800,000 in
fiscal year 2011. The Authority reported that these reductions will primarily
come from reduced legal costs and additional payroll savings. According to
an authority official, the Authority continues to look for opportunities to reduce
its operational expenses.
• Obtaining a zero-percent interest rate loan and revenue advances from
new concessionaire—As discussed in Chapter 1 (see pages 15 to 25), in
February 2010, the Authority entered into a new contract for concessionaire
services. As part of this contract, the concessionaire provided a $1 million
zero-percent interest loan in fiscal year 2010. The contract requires the
The Authority has reduced
its operating expenses from
more than $1.4 million in
fiscal year 2007 to
approximately $1.1 million
in fiscal year 2010.
State of Arizona
page 28
Office of the Auditor General
page 29
Figure 3: Authority and Facility Operating Expenses1
Fiscal Years 2007 through 2010
1 To provide a consistent comparison, facility operating expenses include only recurring operating expenses
such as utilities, payroll, and Cardinals and Fiesta Bowl game day expenses. Nonrecurring event expenses
are not included in this figure because they fluctuate based on the number and type of events held each
year.
Source: Auditor General staff analysis of the Authority’s fiscal years 2007 and 2009 financial statements audited
by an independent certified public accounting firm; fiscal year 2010 Working Trial Balance report; fiscal
year 2011 Annual Financial Budget; and fiscal years 2008 and 2009 University of Phoenix Stadium
financial statements audited by an independent certified public accounting firm.
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
2007 2008 2009 2010
Authority Operating Expenses
(In Millions)
Fiscal Year
0
2
4
6
8
10
12
14
2007 2008 2009 2010
Facility Operating Expenses 1
(In Millions)
Fiscal Year
Authority to pay $250,000 annually beginning on August 1, 2011 through
August 1, 2014, to satisfy the loan. However, unless the contract is terminated,
the concessionaire will reimburse the Authority for these annual payments
beginning on August 1, 2011 through August 1, 2014. The contract has a
termination date of July 31, 2012, but includes unlimited optional 1-year
extensions. According to an authority official, even if the contract is not
extended, the Authority does not plan to use any of its resources to repay the
remaining loan amount. Specifically, the Authority plans to include a similar
arrangement in any future concessionaire contract so the Authority will not
have to repay the remaining loan amount, if any, with its own resources.
The contract also requires the concessionaire to provide advances against the
Authority’s share of future concessions revenues. The concessionaire provided
an advance of $500,000 during fiscal year 2010, and the contract provides for
three additional $500,000 revenue advance payments in January 2011,
August 2011, and August 2013. According to the contract, the concessionaire
will recoup the advance amounts by retaining the first $500,000 annually in
remittances owed to the Authority. However, even if the concessionaire has not
generated sufficient revenues to recoup the advance amounts annually, the
Authority will not have to repay these advances if it does not terminate the
contract.
• Entering a contract for guaranteed annual benefits with an event
management company—As discussed in Chapter 1 (see pages 15 to 25), in
February 2010, the Authority also entered into a separate contract with a
second event management company (Company), an affiliate of the concessions
vendor referred to above.1 As of July 2010, this event management company
works together with both the Authority and the facility manager to help increase
revenues and events at the facility and decrease expenses. The contract
provides the Authority with guaranteed operational revenue increases and/or
cost reductions of $750,000 each year for the duration of the contract. If the
Company does not generate actual annual benefits totaling $750,000, the
contract requires it to make up the difference to the Authority. Increased
revenues could result from an increase in sales tax recapture, food and
beverage sales, facility-use fees, and other revenues from facility events,
including Arizona Cardinals (Cardinals) National Football League events. Cost
reductions are event operating cost savings arising from the Company’s
initiatives or actions, which would also include Cardinals home game expenses
and goods or services provided by third parties. The contract terminates on
June 30, 2012, and includes unlimited optional 1-year extensions, but is only
effective as long as the new concessionaire contract is in effect.
• Taking advantage of and terminating in a favorable manner an agreement
designed to protect against interest rate increases—The Authority
terminated a Constant Maturity Swap (CMS) agreement it had established to
protect it from potential increases in the interest rate it pays on its $53.1 million
1 The Authority’s contract with the facility manager also requires it to perform event management responsibilities.
page 30
State of Arizona
variable-rate bonds. Under this agreement, the Authority paid another party a
specified market-indexed interest rate on its bonds, and the other party paid
the Authority an amount based on a different market-indexed interest rate. This
agreement attempted to even out the effective interest rate paid by the
Authority. Any difference between the two rates provided either a gain or loss
to the Authority. To take advantage of favorable interest rates, in January 2009
the Authority’s Board of Directors (Board) approved a resolution authorizing
the Authority to temporarily disable this agreement. When the interest rate
difference was in the Authority’s favor in February 2009, the Authority locked in
this difference and received payment of approximately $1.1 million. When
interest rates were again in the Authority’s favor in February 2010, the Board’s
Budget, Audit, and Finance Committee authorized the termination of this
agreement and the Authority received a payment of $1.6 million.
Revenues potentially insufficient to satisfy all funding priorities—The
Authority projects it will continue to face financial difficulties through fiscal year
2016, the last year for which it has made projections. Specifically, the Authority did
not receive sufficient revenues to meet all of its funding priorities in fiscal year 2010
and projects it will not meet them each year through fiscal year 2016. The Authority
has experienced declining tourism revenues from the hotel bed tax and car rental
surcharge, which it uses to help meet its bond debt obligations and distribute
monies for tourism promotion, Cactus League promotion, and youth and amateur
sports. As Table 5 shows (see page 32), through fiscal year 2009, the Authority had
sufficient total revenue to make maximum statutorily required distributions for all of
these responsibilities. However, revenues from hotel bed taxes and car rental
surcharges have decreased from approximately $25.5 million in fiscal year 2007 to
approximately $21 million both in fiscal years 2009 and 2010. Consequently,
although the revenues were sufficient to meet its bond debt obligations, they were
insufficient for monthly maximum statutorily required distributions for these other
purposes starting in fiscal year 2010. The Authority projects the same outcome for
fiscal years 2011 through 2016. Based on statutorily required distributions to these
three priorities, the Authority projects a revenue distribution shortfall of approximately
$17.4 million for fiscal years 2010 through 2016.
Besides having insufficient revenues to meet these statutorily required distributions,
the Authority also projects deficits for its own operations through fiscal year 2014,
as shown in Table 6 (see page 33). Projected operating deficits range from
approximately $800,000 to $3 million and by fiscal year 2016 its cumulative
operating deficit is projected to total approximately $6 million. The Authority
projects these operating deficits will reduce its operating reserve by approximately
$7.7 million between fiscal years 2011 and 2014. However, the Authority might use
more of its operating reserve or even deplete it if revenues do not increase as
projected. For example, as discussed on pages 38 to 39, the Authority projects
that its tourism revenues will increase 2.5 percent in fiscal year 2012 and 5 percent
annually in fiscal years 2013 through 2016. If these increases do not materialize,
Authority revenues from
hotel bed taxes and car
rental surcharges have
decreased from
approximately $25.5 million
in fiscal year 2007 to
approximately $21 million in
fiscal year 2010.
Office of the Auditor General
page 31
page 32
State of Arizona
Table 5: Impact of Revenue Shortfalls on Tourism Promotion, Cactus League Promotion,
and Youth and Amateur Sports Distributions
Fiscal Years 2001 through 2016
(In Millions)
1 Includes amounts from the Facility Revenue Clearing Account (Account) that are projected to retire a portion of the Authority’s $32.4 million subordinate bonds issued
to build the City of Surprise Stadium. The Authority used $1.9 million through fiscal year 2010 and estimates it will use $9.8 million from the Account to pay for debt
service during fiscal years 2011 through 2016.
2 Amounts are the annual totals to make the monthly distributions required by A.R.S. §5-835 assuming revenues were, or will be, sufficient to make the full distribution.
3 Since the amounts that were, or will be, distributed are based on having sufficient monthly revenues available to do so, the actual or projected distributions may not
meet the maximum amounts specified in A.R.S. §5-835. However, for years prior to fiscal year 2010, the Authority chose to use its operating account monies to fully
fund these distributions even when available monthly revenues in the Tourism Revenue Clearing Account were not sufficient to do so.
Source: Auditor General staff analysis of A.R.S. §5-835, and the Authority’s fiscal years 2005 and 2011 Annual Financial Budget; fiscal years 2001 through 2009 general
ledgers; and November 2010 cash flow projections.
Fiscal
Year
Actual:
2001 $ 0.3 $ 0.3 $ - $ 0.2 $ 0.2 $ - $ 0.1 $ 0.1 $ - $ -
2002 4.0 4.0 - 3.0 3.0 - 1.0 1.0 - -
2003 4.2 4.2 - 3.0 3.0 - 1.1 1.1 - -
2004 4.4 4.4 - 3.0 3.0 - 1.2 1.2 - -
2005 4.7 4.7 - 3.0 3.0 - 1.3 1.3 - -
2006 4.9 4.9 - 3.0 3.0 - 1.4 1.4 - -
2007 5.1 5.1 - 3.0 3.0 - 1.5 1.5 - -
2008 5.4 5.4 - 3.1 3.1 - 1.6 1.6 - -
2009 5.6 5.6 - 4.0 4.0 - 1.7 1.7 - -
2010 5.9 5.3 (0.6) 4.0 3.8 (0.2) 1.8 0.9 (0.9) (1.7)
Estimated:
2011 6.2 5.4 (0.8) 4.2 3.9 (0.3) 1.9 0.9 (1.0) (2.1)
2012 6.5 5.8 (0.7) 6.0 5.3 (0.7) 2.0 0.8 (1.2) (2.6)
2013 6.9 6.2 (0.7) 6.1 5.3 (0.8) 2.1 0.9 (1.2) (2.7)
2014 7.2 6.6 (0.6) 7.0 5.9 (1.1) 2.2 0.9 (1.3) (3.0)
2015 7.6 7.1 (0.5) 7.0 6.0 (1.0) 2.3 1.1 (1.2) (2.7)
2016 8.0 7.6 (0.4) 7.0 6.0 (1.0) 2.4 1.2 (1.2) (2.6)
Total $ 86.9 $ 82.6 $ (4.3) $ 66.6 $ 61.5 $ (5.1) $ 25.6 $ 17.6 $ (8.0) $ (17.4)
Annual
Total Revenue
Shortfall for
Making
Maximum
Statutorily
Required
Distributions
if Revenues
Revenue
Shortfall for
Making Making
Shortfall for
Revenue Statutorily
Statutory
Actual or
Projected
Revenue
Shortfall for
Making
Maximum
Are Statutory
if Revenues
Are
Actual or
Projected
Maximum
Are Projected Statutory
Actual or
Statutory
Maximum
Required
Distributions
Required
Distributions
if Revenues
Annual Annual
Distributions Distributions 3
Tourism Promotion Cactus League Promotion 1
Sufficient 2 Distributions Distributions 3 Sufficient 2 Distributions Distributions 3 Sufficient 2 Distributions 3
Youth and Amateur Sports
Statutorily
the Authority may have to rely on its operating reserve to make up the difference.
Conversely, if revenues increase more than projected, the Authority may not need
to rely on its reserve as much.
The Authority’s projected revenue is also insufficient to fund the three statutorily
required reserve accounts. Specifically:
• Youth and amateur sports reserve—The Authority has set aside sufficient
monies to meet statutory requirements for fully funding this reserve prior to
fiscal year 2010. As of June 30, 2010, the Authority had distributed
approximately $1.9 million to this reserve. However, the Authority has not
appropriately applied the funding requirements specified by Arizona Revised
Statutes (A.R.S.) §5-835 to this reserve and it projects being unable to fully
fund the youth and amateur sports reserve for fiscal years 2011 through 2016
because of revenue shortfalls. Specifically, the Authority annually allocates
monies to the reserve instead of monthly as required by statute. Annually
funding this reserve as opposed to funding the reserve on a monthly basis
potentially reduces the amount of monies distributed to the reserve.
Additionally, the Authority did not use this reserve to make up for any tourism
revenue shortfalls in monthly distributions to youth and amateur sports as
required by A.R.S. §5-838(B). Instead, the Authority used its operating monies
to make up for revenue shortfalls prior to fiscal year 2010. If the Authority had
followed statute, the reserve would have been used regularly during fiscal year
2010 to make up for the revenue shortfalls in its youth and amateur sports
program and the balance in its reserve account would have been less than
statutorily required. However, because the Authority used its operating monies
to fully fund any prior shortfalls in monthly allocations to the youth and amateur
sports program, the program as a whole is not underfunded. To ensure
The Authority projects being
unable to fully fund the
youth and amateur sports
reserve for fiscal years 2011
through 2016.
Office of the Auditor General
page 33
Table 6: Summary of Projected Cumulative
Operating Deficit
Fiscal Years 2011 through 2016
(In Millions)
(Unaudited)
Source: Auditor General staff analysis of the Authority’s November 2010 cash
flow projections for fiscal years 2011 through 2016.
Fiscal
Year
2011 $ (2.6) $ (2.6)
2012 (3.0) (5.6)
2013 (1.3) (6.9)
2014 (0.8) (7.7)
2015 0.3 (7.4)
2016 1.4 (6.0)
Projected
Operating (Deficit)
Surplus
Projected
Cumulative
Operating Deficit
State of Arizona
page 34
compliance with statute, the Authority should properly apply the funding
priorities required in A.R.S. §5-835 and use the reserve to fund monthly
revenue shortfalls as required by A.R.S. §5-838(B).
• Operating reserve—Although the Authority reported an operating reserve
totaling nearly $9 million as of June 30, 2010, based on its projections the
Authority will not be able to set aside additional monies for its operating
reserve and projects that it will reduce this balance by $7.7 million between
fiscal years 2011 and 2014.
• Capital repair and replacement reserve—Finally, according to A.R.S.
§5-836(C)(2), the Authority is required to establish a reserve of at least $25
million, adjusted for inflation each year after 2001, to meet facility repair,
replacement, and removal expenses. This reserve is critical to addressing
major capital repairs and renovations that arise as the facility ages. However,
the Authority stated that revenues have been insufficient to fund this reserve.
Limited options for increasing revenues and reducing
expenses available
The Authority has limited options it could pursue to further address its financial
situation. One option will potentially become available in fiscal year 2016, when the
Authority will retire its subordinate bond debt, potentially making monies available for
authority operations. The Authority’s near-term options for addressing its financial
situation are limited to its operating activities because most authority revenues and
distributions are restricted by voter-approved or statutory mandates and facility
agreements.
Retirement of subordinate bond debt in fiscal year 2016 may free up
monies for authority use—The scheduled retirement of the Authority’s
subordinate bonds in fiscal year 2016 may assist the Authority in addressing its
financial situation, but not until that time. The Authority issued these bonds in fiscal
year 2003 to provide funding for the construction of the City of Surprise Cactus
League spring-training baseball facility (see Chapter 3, page 45 for information on
the subordinate bonds). Although the Authority uses its tourism revenues first to
meet this bond obligation, it also pledged its facility revenues to help satisfy this
obligation in the event that tourism revenues are insufficient to meet the bond debt
service requirements. For example, in fiscal year 2010, the Authority used
approximately $1.4 million in facility revenues to meet this debt obligation, and it
projects that an additional $9.8 million in facility revenues will be needed in fiscal
years 2011 through 2016 to satisfy the remaining bond debt obligation.
According to A.R.S. §5-834, any revenues not needed for the Authority’s senior
bond obligations or other debt secured with the facility revenues are available for
The Authority has not
funded the statutorily
required capital repair and
replacement reserve.
Office of the Auditor General
page 35
operations. Consequently, after the subordinate bonds are retired, the Authority
may have additional monies for operations.
Authority should continue taking steps to increase revenues and
decrease expenses—The Authority and its Board of Directors should
continue to take steps to address its financial shortfall. The Authority’s options for
addressing its projected deficits are limited because much of its revenues and
required distributions of those revenues are restricted. Specifically, the hotel bed
tax and car rental surcharge are voter-protected revenues that would require voter
approval to change, while the NFL income taxes, sales tax recapture monies, and
distribution of most of these revenues would require legislative action to change.
Additionally, various facility agreements further limit authority options for generating
revenues and reducing expenses. For example, according to an agreement with
the Cardinals, the Authority pays for all Cardinals’ game day expenses, which were
more than $2.3 million annually in fiscal years 2009 and 2010, while the Cardinals
paid approximately $265,300 in rent for fiscal year 2010 and receive all game day
revenues. However, the Authority receives a portion of all sales tax revenues
generated at Cardinals home games which, according to the Authority, totaled
approximately $4 million in fiscal year 2010. Facility-use fee agreements also
restrict how monies generated from facility-use fees on facility event tickets,
including Cardinals’ game tickets, can be used. Further, as stated in A.R.S. §§5-
836(D) and 5-875(C)(4-5), the State of Arizona is not financially liable for any of the
Authority’s expenses or obligations. Steps the Authority should take include the
following:
• Continuing to explore options for increasing revenues for events held at
the facility—The Authority should continue to explore options for increasing
facility event revenue. As shown in Table 7, the reported number of events
hosted and the nonfootball event attendance has declined each year since it
opened in fiscal year 2007
except in fiscal year 2010,
and the Authority projects
additional declines in fiscal
year 2011. According to an
authority official, the reduction
in the number of events is
consistent with the normal
operation of any new stadium
or sports facility over the first
5 years of operation.
According to University of
Phoenix Stadium records
and a facility manager
representative, there were
several large events that
brought in substantial
The Authority’s options for
addressing its projected
deficits are limited because
much of its revenues and
required distributions are
restricted.
Table 7: Number of Multipurpose Facility Events and
Event Attendance
Fiscal Years 2007 through 2011
(Unaudited)
1 Excludes events held in conjunction with the facility’s grand opening.
Source: Auditor General staff analysis of the Authority’s fiscal year 2011 budget
worksheets and information provided by the Authority’s facility manager.
Number of Nonfootball Football
Events Attendance Attendance
2007 1 179 499,699 711,009
2008 132 454,431 613,604
2009 121 433,469 745,752
2010 113 513,361 706,784
101 325,185 695,893
Fiscal
Year
2011 (Est.)
State of Arizona
page 36
revenues and attendees during fiscal year 2010. These large events resulted
in increased operating revenues. However, according to an authority official,
the Authority has only one large event scheduled for fiscal year 2011; therefore,
it projects its operating revenues will decrease in fiscal year 2011.
A facility manager representative reports that in addition to trying to secure
major ticketed events, the management team continues to expand its roster of
consumer, trade, and special and corporate event categories by aggressively
marketing the facility to destination management companies and new local
and national show producers. For example, the fiscal year 2011 event
schedule includes a gun show and a children’s exposition. According to an
authority official, the Authority’s goal is to hold approximately 100 events per
year and its Board directed staff and the facility manager to focus on larger
revenue-generating events. As shown in Table 7 (see page 35), the Authority
held 113 events in fiscal year 2010 and projects holding 101 events in fiscal
year 2011, which is in line with the Authority’s goal. A facility manager
representative reports that the management team is working to secure
additional events in fiscal year 2011 such as two motorsports events and
soccer events, and has been working for the past one-and-a-half years for a
soccer world cup event in 2018 or 2022. In addition, the Authority has taken
steps to increase event revenues, such as entering an agreement with a
second event management company to increase revenues (see page 30).
• Continuing to explore options for decreasing operating expenses—As
discussed on page 28 and shown in Figure 3 (see page 29), the Authority has
taken steps to reduce its operating expenses and worked with its facility
manager to reduce the facility’s operating expenses. The Authority should
continue to explore options to decrease operating expenses to provide it with
monies that can be used for operations and potentially reserved for future
needs, such as facility improvements and renovations. For example, the
Authority should consider whether it can further reduce its legal costs.
Specifically, during each of fiscal years 2008 and 2010 the Authority paid more
than $255,000 in legal expenses and during fiscal year 2009, it paid
approximately $172,000 in legal expenses. For fiscal years 2008 and 2010,
these expenses represented nearly 25 percent of the Authority’s annual
operating expenses. Although the legal services it needs will vary from year to
year, these expenses could potentially be reduced. Therefore, the Authority
should continually review its legal services and the related expenses to
determine if opportunities exist to reduce these expenses.
Finally, as discussed on page 34, the Authority has been unable to fund its capital
repair and replacement reserve and projects revenues will not be sufficient to do
so through fiscal year 2016, when the facility will be 10 years old. Consequently,
the Authority may not have sufficient monies to make needed repairs to the facility
and provide for its upkeep as the facility ages. Because the Cardinals have a
vested interest in maintaining and potentially renovating the facility as it ages, they
Because the Authority has
not funded its capital repair
and replacement reserve, it
may not have sufficient
monies to make future
needed facility repairs.
Office of the Auditor General
page 37
may be willing to renegotiate the facility-use fee agreement to make some of the
monies that are deposited in a trust account available for facility repairs. As
previously mentioned, the facility-use fee and associated agreements with the
Cardinals were established to generate revenues to retire the Authority’s $53.1
million bond debt and to reimburse the Cardinals for certain construction and other
costs they incurred that were not their obligation (see Introduction and Background,
pages 1 to 13). Under the agreement, the Cardinals receive the facility-use fees
from the sale of Cardinals game tickets. The Authority receives facility-use fees
from the Fiesta Bowl and other facility events. The Cardinals’ monies are deposited
into a trust account and, according to the facility-use agreement, are available for
debt service payments on the Authority’s $53.1 million bond debt, but only if
certain conditions are met.1 During fiscal years 2007 through 2010, approximately
$10.2 million has been deposited into the trust account. However, because the
Authority has not needed to access these monies to help retire the bond debt, the
money has been paid to the Cardinals (see Introduction and Background, page 5,
for more information).
Authority has reasonable 1-year revenue and expense
projections and prepares long-term revenue projections
for planning purposes
The Authority prepares an annual budget that includes short-team revenue and
expense projections for the upcoming fiscal year and long-term revenue and
expense projections for an additional 5 fiscal years for planning purposes. The
Authority’s 1-year revenue projections are based on reasonable methods, but the
Authority faces challenges making long-term revenue projections, which have been
less reliable than its 1-year projections. To enhance its long-term projections, the
Authority should continue to work with the Office of Tourism and other tourism
industry representatives to develop tourism revenue projections and create different
ranges of growth such as conservative, moderate, and aggressive scenarios for its
tax revenues. Finally, the Authority uses reasonable procedures to project its
expenses.
Authority’s 1-year revenue projections reasonable—The Authority’s
budget includes projections for all of its revenues, and as shown in Figure 4 (see
page 38), the Authority’s fiscal years 2002 through 2010 1-year revenue projections
for its tax revenues generally provided reasonable estimates of its actual tax
revenues.2 Although the Authority’s 1-year revenue projections for individual tax
revenues produced mixed results, its overall projections from its four tax revenues
1 According to the facility-use fee trust agreement, a ratio of 74.9 percent was established to determine whether the
Cardinals’ facility-use fees maintained in the trust would be used to help meet the $53.1 million bond debt service
requirements. The Authority annually determines if it received sufficient revenues to pay 74.9 percent of the $53.1
million bond debt service. If it received enough monies, then the Authority cannot use the facility-use fees in the trust
account for debt service payments.
2 Tax revenues consist of hotel bed taxes, car rental surcharges, NFL income taxes, and sales tax recapture revenues.
combined produced reasonable estimates. For example, the Authority’s projected
hotel bed taxes for fiscal year 2009 were 14.8 percent higher than actual revenues;
however, the Authority projected all tax revenues combined at approximately 1.1
percent less than actual revenues.
Authority faces challenges projecting long-term revenues—The
Authority has experienced challenges in providing reliable long-term projections,
which it prepares for planning purposes, because many of its revenues are
affected by the State’s economy. For example, in both its fiscal year 2007 and 2008
budgets, the Authority projected an approximately 5 percent annual increase in its
hotel bed tax revenues for fiscal years 2009 and 2010. Similarly, in its fiscal year
2009 budget, it projected a 5 percent increase in fiscal year 2010 for these tax
revenues. However, the hotel bed taxes actually declined by nearly 18 and 7
percent in fiscal years 2009 and 2010, respectively, because the State entered a
recession.
Projecting long-term revenues will continue to be challenging because the
Authority must consider economic changes such as recessions, expansions, and
inflationary periods. The State of Arizona has encountered similar challenges
projecting revenues. For example, according to the State of Arizona’s Joint
Projecting long-term
revenues can be
challenging.
State of Arizona
page 38
Figure 4: Comparison of Projected to Actual Tax Revenues1
Fiscal Years 2002 through 2010
1 Tax revenues consist of hotel bed taxes, car rental surcharges, NFL income taxes, and sales tax recapture revenues.
Source: Auditor General staff analysis of the Authority’s fiscal years 2002 through 2010 Annual Financial Budget; fiscal years
2002 through 2009 financial statements audited by independent certified public accounting firms; and fiscal year
2010 Working Trial Balance report.
0
5
10
15
20
25
30
35
40
2002 2003 2004 2005 2006 2007 2008 2009 2010
(In Millions)
Fiscal Year
Projected
Actual
Office of the Auditor General
page 39
Legislative Budget Committee, “long-term revenue projection is speculative;”
however, “most economists are forecasting some future growth but the precise
magnitude is difficult to predict with any certainty.”1
Despite these challenges, reasonably accurate revenue forecasts are important
for the Authority to manage its finances. Specifically, the Authority’s projected
depletion of its operating reserves in fiscal year 2014 is based on tourism revenues
increasing 2.5 percent in fiscal year 2012 and 5 percent annually during fiscal
years 2013 through 2016. Similarly, it is based on NFL income taxes increasing 5
percent and sales tax recapture revenues increasing between 3.7 and 9.2 percent
during fiscal years 2012 through 2016. If these forecasted increases are
substantially incorrect, the Authority may need to

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A REPORT
TO THE
ARIZONA LEGISLATURE
Debra K. Davenport
Auditor General
Special Audit
Arizona Sports and
Tourism Authority
Performance Audit Division
December • 2010
REPORT NO. 10-09
The Auditor General is appointed by the Joint Legislative Audit Committee, a bipartisan committee composed of five senators
and five representatives. Her mission is to provide independent and impartial information and specific recommendations to
improve the operations of state and local government entities. To this end, she provides financial audits and accounting services
to the State and political subdivisions, investigates possible misuse of public monies, and conducts performance audits of
school districts, state agencies, and the programs they administer.
The Joint Legislative Audit Committee
Audit Staff
Copies of the Auditor General’s reports are free.
You may request them by contacting us at:
Office of the Auditor General
2910 N. 44th Street, Suite 410 • Phoenix, AZ 85018 • (602) 553-0333
Additionally, many of our reports can be found in electronic format at:
www.azauditorv.gov
Representative Judy Burges, Chair
Representative Tom Boone
Representative Cloves Campbell, Jr.
Representative Rich Crandall
Representative Kyrsten Sinema
Representative Kirk Adams (ex officio)
Senator Thayer Verschoor, Vice Chair
Senator John Huppenthal
Senator Richard Miranda
Senator Rebecca Rios
Senator Bob Burns (ex officio)
Dale Chapman, Director and Contact Person
Robin Hakes, Team Leader
Sebrina Beckstrom
Cathy Clark
Winter Morris
Rita Seto
2910 NORTH 44th STREET • SUITE 410 • PHOENIX, ARIZONA 85018 • (602) 553-0333 • FAX (602) 553-0051
MELANIE M. CHESNEY
DEPUTY AUDITOR GENERAL
DEBRA K. DAVENPORT, CPA
AUDITOR GENERAL
STATE OF ARIZONA
OFFICE OF THE
AUDITOR GENERAL
December 21, 2010
Members of the Arizona Legislature
The Honorable Janice K. Brewer, Governor
Mr. Tom Sadler, President/Chief Executive Officer
Arizona Sports and Tourism Authority
Transmitted herewith is a report of the Auditor General, A Special Audit of the Arizona
Sports and Tourism Authority. This report is in response to Laws 2010, Ch. 5 and was
conducted under the authority vested in the Auditor General by Arizona Revised Statutes §41-
1279.03. I am also transmitting within this report a copy of the Report Highlights for this
audit to provide a quick summary for your convenience.
As outlined in its response, the Arizona Sports and Tourism Authority agrees with most of
the findings and plans to implement all of the recommendations, including one
recommendation that it plans to implement in a different manner.
My staff and I will be pleased to discuss or clarify items in the report.
This report will be released to the public on December 22, 2010.
Sincerely,
Debbie Davenport
Auditor General
Attachment
cc: Bill Peltier, Chairman
Board of Directors
Arizona Sports and Tourism Authority
2010
December • Report No. 10 - 09
Arizona Sports and
Tourism Authority
Our Conclusion
The Arizona Sports and
Tourism Authority
(Authority) is responsible
for operating and
marketing the University of
Phoenix Stadium, the
multipurpose facility that is
the home of the Arizona
Cardinals (Cardinals) and
the Fiesta Bowl; and
distributing monies for
various statutory purposes.
The Authority has taken
steps to address its
financial situation, but
projects continuing
revenue shortfalls affecting
its ability to meet statutory
distributions and resulting
in a reduced operating
reserve. These shortfalls
should not affect its ability
to meet its bond
obligations. The Authority’s
procurement of
concessions services
largely adhered to best
practices and it should use
these best practices for
future procurements. The
Authority should also make
some minor changes to its
oversight of the facility
manager and review of
youth and amateur sports
grant projects.
REPORT
HIGHLIGHTS
SPECIAL AUDIT
Authority has improved financial situation, but
still faces challenges
The Authority receives its operating
revenue from normal operations of the
facility, including rental payments,
concessions commissions, and facility-use
fees for all events held at the facility,
except Cardinals games. It also receives
nonoperating revenues from a Maricopa
County hotel bed tax and car rental
surcharge; state income taxes paid by
the Cardinals’ corporate organization, its
employees, and their spouses; and
sales taxes generated from events held
at the facility.
Statutes establish the amounts and
priority for using the Authority’s revenues.
The revenues go first to pay bonds
issued to construct the multipurpose
facility, then for tourism promotion,
Cactus League promotion, youth and
amateur sports programs, authority
operations, and its reserves.
The Authority projects that it will have
operating deficits through fiscal year
2014 resulting in a cumulative operating
deficit of approximately $6 million by
fiscal year 2016.
Authority has taken steps to address
its financial situation—The Authority
has a $9 million operating reserve as of
June 30, 2010, which has resulted from
steps it has taken to address its financial
situation. These steps include reducing
operating expenses for both the facility
and the Authority, such as reducing
staffing.
Other steps taken pertained to the
Authority’s concessionaire contract.
Specifically, it obtained a $1 million zero-percent
interest rate loan from its new
concessionaire that it will essentially not
have to pay back if the contract is not
terminated, as well as $500,000 annually
for 4 years in cash advances against the
Authority’s share of future concessions
revenues. It also entered into a separate
contract with a second event
management company affiliated with its
new concessionaire. The contract
provides guaranteed operational revenue
increases and/or cost reductions of
$750,000 each year at least until 2012.
After that, the Authority can renew this
contract annually for an indefinite time as
long as the new concessionaire contract
is in effect.
The Authority also took advantage of
interest rate differences
related to its variable-rate
senior bonds and received
two payments totaling
approximately $2.7 million.
The Authority still faces
financial difficulties for the
foreseeable future. Hotel bed
taxes and car rental
surcharges that the Authority
receives have decreased from
approximately $25.5 million in
fiscal year 2007 to
Summary of Projected Cumulative Operating Deficit
Fiscal Years 2011 through 2016
(In Millions)
(Unaudited)
Fiscal
Year
2011 $ (2.6) $ (2.6)
2012 (3.0) (5.6)
2013 (1.3) (6.9)
2014 (0.8) (7.7)
2015 0.3 (7.4)
2016 1.4 (6.0)
Projected
Operating (Deficit)
Surplus
Projected
Cumulative
Operating Deficit
approximately $21 million annually in fiscal years
2009 and 2010. As a result, although revenues were
sufficient to meet bond debt obligations, starting in
fiscal year 2010, they were insufficient to fully fund
tourism promotion, Cactus League promotion,
youth and amateur sports, and the Authority’s
operations. The Authority projects the same
outcome through fiscal year 2016. Additionally, the
Authority projects that its operating deficits will
reduce its operating reserves by approximately $7.7
million between fiscal years 2011 and 2014. Further,
the Authority’s anticipated revenues are not
sufficient to fund three statutorily required reserves
for youth and amateur sports, operations, and
capital repair and replacement.
Authority’s options to reduce financial shortfall
limited—A change in the bed tax and rental car
surcharge would require voter approval, and
changes in NFL state income taxes, sales tax
recapture, or the revenue distribution stream would
require legislative action. The Authority’s various
facility agreements further limit its options for
generating revenues.
Recommendation:
The Authority should continue to explore options for
increasing facility event revenues and decreasing
operating expenses, such as reviewing its legal
services to determine if opportunities exist to reduce
these expenses.
page 2
Although the Authority is exempt from the state
procurement requirements, it has adopted its own
procurement policy. The policy provides a $25,000
threshold that triggers competitive bidding or
documentation of the reason competitive bidding is
not used and a $100,000 limit the Chief Executive
Officer can contract for before prior approval by the
Board of Directors is required.
Following procurement best practices can help
produce quality contracts. One of the Authority’s
strategies to improve its financial situation was to
rebid its concessions contract. This procurement
largely adhered to best practices. The Authority’s
concessions request for proposal addressed its
business needs, the scope of services, and
performance requirements. It used a team to
evaluate the written proposals using appropriate
guidelines, and the contracts were awarded based
on the evaluators’ recommendation.
Authority did not use a competitive procurement
process for some contracts—Although the
Authority spent more than $604,000 for its primary
legal services in fiscal years 2008 through 2010,
and a total of $96,000 on lobbying in fiscal years
2009 and 2010, it did not competitively procure
these contracts or document the reasons why a
competitive procurement would be impracticable,
as its policy requires.
Recommendations:
• The Authority’s existing procurement policy does
not include many of the procurement best prac-tices
it used to bid its concessions contract and it
should incorporate these procurement practices
in to its policies.
• The Authority should follow its policy for com-petitively
procuring services valued at more than
$25,000 or document why a competitive bid is not
practicable.
Use style: Finding: Heading (Purple)
Concessions procurement largely adhered to best
practices; additional policies and procedures for future
procurements would be helpful
Authority pays bonds, but has reached debt capacity
The multipurpose facility (University of Phoenix
Stadium) cost more than $465 million to build. The
Authority paid for most of its contribution by issuing
about $277.6 million in revenue bonds. The cost of
these bonds, most of which will be paid by 2031,
including interest, is expected to total approximately
$550.8 million. The Cardinals contributed $148.2
million toward facility construction and development
costs, $25 million of which is being repaid through
facility-use fees collected on event tickets. Although
Use style: Finding: Heading (Purple)
Facility manager oversight has improved, but minor
additional steps needed
page 3
The facility manager is responsible for the
management and operation of the facility,
including marketing the facility, booking
events, facility maintenance and custodial
services, security, and overseeing the
concessionaire. The Authority has revised the
facility manager incentive fee structure to
make it more performance-based. The
previous incentive fee structure was less
performance-based than contracts at some
other National Football League stadiums. Now
it bases the objective incentive fee on specific
goals, such as attendance and the number of
events. The Cardinals and the Fiesta Bowl
may recommend that the facility manager
receive the subjective incentive fee based on
their evaluations of the facility manager’s
performance; however, the Authority makes
the final determination whether or not to award the
fee.
Authority has improved oversight of facility
manager—After each event, the facility manager
settles with event promoters. The Authority’s new
event settlement procedures allow it to better
ensure that the facility manager adequately
reconciles event settlements. Specifically, the
Authority reviews at least one monthly event
settlement and verifies financial information, such
as comparing the ticket report and actual ticket
sales.
Some reviews still too limited—In monthly
meetings with the facility manager, the Authority
reviews and discusses monthly and quarterly
preventative maintenance. However, these reports
do not document whether maintenance was
performed according to the preventative
maintenance schedule. To ensure that preventative
maintenance is performed as scheduled, the
Authority should require a monthly report showing
which items on the maintenance schedule were
completed.
Although the Authority reviews the facility
manager’s expenses, its review is limited. For
example, it reviews direct expenses, but does not
review indirect expenses, such as payroll, training
costs, or office expenses, such as telephone or
postage. The Authority also does not review check
registers or bank reconciliations.
Recommendations:
The Authority should:
• Ensure the facility manager performs preventa-tive
maintenance as scheduled.
• Expand its review of the facility manager’s indi-rect
expenses, including monthly check registers
and bank reconciliations.
the City of Glendale did not contribute toward the
development and construction of the facility, it
contributed $6.7 million for street improvements.
The Authority also issued $32.4 million in
subordinate revenue bonds to fund part of the City
of Surprise Stadium construction as part of its
Cactus League responsibilities.
The Authority has pledged nearly all of its
revenues to meet its debt service obligations,
which it is meeting, and it appears that it will be
able to continue to meet. However, the Authority
cannot incur additional debt because of its bond
obligations, Cactus League and youth and
amateur sports commitments, and projected
operating deficits.
Source: Global Spectrum. (2007). University of Phoenix Multipurpose
Football Stadium. [Photograph]. Retrieved January 6, 2009,
from http://www.universityofphoenixstadium.com/index.php
Authority promoting Cactus League, but commitments
potentially affected by revenue shortfall
Authority funding has helped youth and amateur sports,
but future funding potentially limited
page 4
As of June 30, 2010, the Authority had awarded
more than $12.5 million in youth and amateur sports
project grants. The Authority did not have sufficient
revenues in fiscal year 2010 to fully fund the youth
and amateur sports program according to statutory
requirements and projects the same through fiscal
year 2016. However, the Authority has sufficient
monies to meet the commitments for grants
awarded.
The Authority distributes most of the money through
a biennial grant program, awarding approximately
$7.1 million during the 2004 through 2010 biennial
grant cycles. It has established, and largely follows,
policies and procedures for this program. However,
to improve the program, the Authority should make
some administrative changes such as improving its
review of reimbursement requests. In one instance,
the recipient transposed numbers on the request for
reimbursement and also changed the scope of the
project without the Authority’s approval.
The Authority also has a quick grant program that
focuses on equipment-related needs and pays up
to two-thirds, with a maximum of $2,500, of projects
not exceeding $10,000. The Authority has awarded
76 quick grants totaling more than $151,000.
However, for five grants, auditors could not
determine whether the Authority issued the quick
grant on a reimbursement basis as required by the
quick grant funding requirement. In addition, it
previously advanced grant funding to applicants
and for some pre-May 2008 grant applicants, it did
not take steps to completely close out project files
or ensure the monies were spent as intended.
The Authority also issued 3 grants before it
established the two grant programs. It paid
$150,000 toward the construction of the South
Mountain YMCA sports fields, and agreed to
contribute approximately $4.1 million to the City of
Avondale for a regional sports complex, and $1
million for the construction of multipurpose sports
fields in the City of Glendale.
Recommendations:
The Authority should:
• Improve its biennial and quick grant application
processes by making some minor changes.
• Review quick grants and consider whether to
recover any grant monies used inappropriately.
REPORT
HIGHLIGHTS
SPECIAL AUDIT
December 2010 • Report No. 10 - 09
A copy of the full report is available at:
www.azauditor.gov
Contact person:
Dale Chapman (602) 553-0333
Arizona Sports and
Tourism Authority
The Authority issued $32.4 million in subordinate
revenue bonds and used $4.3 million in Cactus
League promotion monies to help pay for the City
of Surprise Stadium construction and the Phoenix
Municipal Stadium renovation. Between fiscal years
2005 and 2007, the Authority committed monies
to the Cities of Tempe, Scottsdale, Glendale, and
Goodyear for the construction or renovation of their
Cactus League facilities. These four cities paid
$259.2 million towards the cost of constructing or
renovating their facilities and the 6 Major League
Baseball teams using these facilities contributed
$18 million. According to the Authority’s agree-ments
with these cities, it has agreed to make
payments to these cities as revenues become
available through approximately $161.9 million in
commitments. However, because of anticipated
tourism revenue shortfalls, the Authority does not
anticipate that it will fully meet its commitments to
the Cities of Glendale and Goodyear. In addition to
the 6 Cactus League facilities described earlier, the
Authority projects it will contribute approximately
$66.6 million toward the renovation of 5 existing
Cactus League facilities from fiscal years 2020
through 2027.
Introduction & Background 1
Chapter 1: Concessions procurement largely adhered to
best practices; additional policies and procedures
to guide future procurement would be helpful 15
Authority has its own procurement policy 15
Following procurement best practices can
help produce quality contracts 16
Concessions procurement followed Authority’s policy
and largely adhered to best practices 17
Additional procurement policies and procedures would
help ensure future procurements also follow best
practices 22
Recommendations 25
Chapter 2: Authority has taken steps to improve financial
situation, but still faces challenges 27
Authority has taken actions, but revenues still insufficient
to satisfy all funding priorities 27
Limited options for increasing revenues and reducing
expenses available 34
Authority has reasonable 1-year revenue and expense
projections and prepares long-term revenue projections
for planning purposes 37
Recommendations 40
Office of the Auditor General
TABLE OF CONTENTS
page i
continued
Chapter 3: Authority meeting bond obligations, but has
reached debt capacity 41
Statutes allow Authority to issue bonds 41
Authority issued revenue bonds for facility construction
and Cactus League projects 42
Authority meeting bond obligations
with pledged revenues 46
Authority has reached debt capacity 46
Bondholder recourse limited 48
Chapter 4: Authority has improved oversight of facility
manager, but minor additional steps needed 49
Authority contracts for facility management, operations,
and maintenance 49
Authority has revised facility manager fee structure 50
Authority should continue to improve facility manager
oversight 53
Recommendations 56
Chapter 5: Authority complying with Cactus League statutory
requirements, but revenue shortfall will affect ability to meet
planned commitments 57
Statute requires Authority to renovate or
construct new Cactus League facilities 57
TABLE OF CONTENTS
continued
page ii
State of Arizona
Office of the Auditor General
page iii
TABLE OF CONTENTS
continued
Chapter 5 (Continued)
Cactus League facilities involve Authority’s financial
assistance and commitments 58
Tourism revenue shortfall will affect Authority’s ability to
meet planned commitments to two cities 62
Authority has planned for future renovations of existing
spring training facilities 65
Chapter 6: Authority funding has helped youth and amateur
sports, but future funding potentially limited 67
Revenue shortfall may limit future funding 67
Two small changes should be made to biennial grant
program 68
Authority should make one change to quick grant
program and consider seeking recovery of some
previously awarded monies 70
Authority issued three grants before formal grants
programs established 74
Recommendations 75
Appendix A: Statutory questions a-i
Appendix B: Events leading to issuance of concessions RFP b-i
State of Arizona
TABLE OF CONTENTS
continued
page iv
Appendix C c-i
Appendix D d-i
Appendix E: Methodology e-i
Agency Response
Tables
1 Examples of Monthly Distributions from the Tourism Revenue Clearing Account
December 2009 and June 2010 8
2 Schedule of Net Assets
As of June 30, 2008, 2009, and 2010
(In Millions) 11
3 Schedule of Revenues, Expenses, and Changes in Net Assets
Fiscal Years 2008 through 2010
(In Millions) 12
4 Contracts Entered into Subsequent to January 1, 2008
As of June 30, 2010 17
5 Impact of Revenue Shortfalls on Tourism Promotion, Cactus League Promotion,
and Youth and Amateur Sports Distributions
Fiscal Years 2001 through 2016
(In Millions) 32
6 Summary of Projected Cumulative
Operating Deficit
Fiscal Years 2011 through 2016
(In Millions)
(Unaudited) 33
Office of the Auditor General
page v
TABLE OF CONTENTS
continued
Tables (Continued)
7 Number of Multipurpose Facility Events and Event Attendance
Fiscal Years 2007 through 2011
(Unaudited) 35
8 Original Projection, January 2004 Projection, and Actual Facility Construction
and Development Costs by Funding Source
As of June 30, 2010
(In Millions) 43
9 Schedule of Estimated Costs to Repay Authority’s
Obligated Senior Bonds
Through July 1, 2036, as of June 30, 2010
(In Millions) 44
10 Actual and Projected Senior Bond and Subordinate Bond Coverage Ratios
through Fiscal Year 2016
As of June 30, 2010 47
11 Facility Manager Fee Schedule
August 11, 2006 through June 30, 2013 52
12 Cactus League Completed Projects, Project Costs, and Funding Sources
Fiscal Years 2002 through 2010
(In Millions)
(Unaudited) 59
13 Cactus League Financial Assistance, Planned Commitments, and
Projected Tourism Revenue Shortfall
As of January 2010
(In Millions)
(Unaudited) 63
14 Cactus League Funding Prioritizations
As of June 30, 2010 64
State of Arizona
TABLE OF CONTENTS
concluded
page vi
Tables (Continued)
15 Authority’s Projected Cactus League Facility Renovation Contributions
Fiscal Years 2020 through 2027
(In Millions)
(Unaudited) 65
16 Cactus League Operating and Maintenance Contributions
As of June 30, 2010 c-ii
17 Initial and Biennial Grants Projects Funded or Awarded for Youth and
Amateur Sports
August 9, 2000 through June 30, 2010 d-ii
18 Quick Grants Projects Funded for Youth and Amateur Sports
August 9, 2000 through June 30, 2010 d-viii
Figures
1 Revenue Distributions in Statutory Priority Order 7
2 Selected National State Auditors Association Best Practices in
Contracting for Services 18
3 Authority and Facility Operating Expenses
Fiscal Years 2007 through 2010 29
4 Comparison of Projected to Actual Tax Revenues
Fiscal Years 2002 through 2010 38
INTRODUCTION
& BACKGROUND
The Office of the Auditor General has conducted a special audit of the Arizona Sports
and Tourism Authority (Authority) pursuant to Laws 2010, Ch. 5. Established by the
Legislature in 2000 and approved by Maricopa County voters in November of that
same year, the Authority has the following four responsibilities:
• Maintaining, operating, improving, and marketing/promoting the use of the
University of Phoenix Stadium, a multipurpose event facility in Glendale that
serves as the home for the Arizona Cardinals National Football League football
team (Cardinals), the Fiesta Bowl football games, and other events;
• Distributing monies to the Arizona Office of Tourism for tourism promotion;
• Attracting and retaining Major League Baseball Cactus League spring training
operations in Maricopa County; and
• Reviewing, approving, and funding grants for youth and amateur sports facilities
and programs within Maricopa County.
This special audit, conducted under the authority vested in the Auditor General by
Arizona Revised Statutes (A.R.S.) §41-1279.03, addresses a number of issues raised
in an earlier March 2009 performance audit of the Authority (see Auditor General
Report No. 09-04). The issues addressed in the March 2009 performance audit
included the Authority’s financial situation and projected shortfalls in revenues and
limited oversight of the facility manager that operates the multipurpose facility. For
this special audit, the Legislature directed the Office of the Auditor General to
address the following areas:
• The Authority’s procurement processes for contracts entered into during
calendar years 2008 and 2009, as well as the Authority’s concessionaire and
event management contracts, which the Authority entered into in February 2010
(see Chapter 1, pages 15 through 25).
• The Authority’s financial situation, cash flow projections, and options available
to increase its revenues or decrease expenses (see Chapter 2, pages 27
through 40).
Office of the Auditor General
page 1
• The Authority’s current and continuing ability to meet its bond obligations, and
bondholders’ legal recourses if the bond obligations are not met (see Chapter
3, pages 41 through 48).
• The Authority’s oversight of the facility manager, including a review of the facility
manager’s incentive fee structure (see Chapter 4, pages 49 through 56).
• The Authority’s contractual obligations for financing Cactus League commitments,
as well as the cities’ and teams’ financial participation (see Chapter 5, pages 57
through 66).
• The Authority’s policies for funding youth and amateur sports programs within
Maricopa County (see Chapter 6, pages 67 through 75).
Where applicable, this audit also makes recommendations for improvement. The
remainder of this Introduction and Background provides information about the
Authority’s responsibilities, funding, legislatively mandated funding priorities, and
organization.
Multipurpose facility and operations
One of the Authority’s largest responsibilities is the multipurpose facility (facility). As
required by A.R.S. §5-807, the Authority constructed a multipurpose facility in
Glendale named the University of Phoenix Stadium. This facility, which began
operations in August 2006, serves as the home for the Arizona Cardinals National
Football League football team and Fiesta Bowl football games. The facility also hosts
other sporting events, concerts, motorsports events, trade and consumer shows,
meetings, and banquets. It is an enclosed air-conditioned structure with a retractable
roof and a retractable natural grass playing surface. It has approximately 63,400
permanent seats and is expandable to 72,200 seats. The Authority has entered into
the following contracts and agreements to help operate the multipurpose facility:
• Facility operations—The Authority contracts with a facility management
company (facility manager) to provide comprehensive facility management and
operating services. The facility manager is responsible for day-to-day facility
operations, including marketing, maintenance, and security, and managing the
contractor that operates concessions. The facility manager has reduced its full-time
employees from 54 in fiscal year 2009 to 32 as of June 30, 2010,
representing a nearly 41 percent reduction in staffing. In addition, the facility
manager hires part-time staff, specialists, and/or subcontractors, as needed, to
manage and operate the facility.
The Authority constructed
and operates the University
of Phoenix Stadium.
State of Arizona
page 2
• Concessions and event management agreements—Using competitive
procurement practices, in February 2010, the Authority and the Cardinals
entered into a contract with a concessionaire to exclusively provide food and
beverage services at the facility and the Authority also entered into a separate
contract with a second event management company to provide financial
assistance in the form of an assurance of at least $750,000 of annual benefits
to the Authority.1 As of July 2010, the event management company works
together with both the Authority and the facility manager to help increase
revenues and events held at the facility and decrease expenses. Both contracts
are for 2-year terms and may be extended for an additional 1-year period. The
Cardinals and the Fiesta Bowl receive between 47 and 50 percent of the
revenues from gross general concessions sales for their events, and the
Authority receives this percentage for other events at the facility. The
concessionaire retains the remainder of gross sales. The Authority owns all
concessions facilities and equipment.
• Box office operations—Under the Authority’s agreement with the Cardinals,
Cardinals staff operate the facility box office for most events held at the facility,
but promoters may provide their own staffing on event days, and according to
the facility manager, the Fiesta Bowl has established its own box office for its
annual event.
Funding sources
The Authority receives funding from various sources, which is used to satisfy several
bond and statutory funding obligations. Specifically, the Authority receives the
following nonoperating and operating revenues.
Nonoperating revenues:
• Hotel bed tax—Consists of revenue from a 1 percent
increase in the hotel bed tax in Maricopa County.2 The tax
began on March 1, 2001, and will continue through February
28, 2031. From the inception of this tax through June 30,
2010, the Authority has received approximately $115.8
million.
• Car rental surcharge—Consists of a 3.25 percent surcharge
on car rentals in Maricopa County, which also began on
March 1, 2001, and will expire on February 28, 2031. This surcharge replaced a
1 Although these contracts were signed in February 2010, the event management contract terms began in July 2010 and
the concession contract terms began in August 2010.
2 Hotel bed tax rates vary among cities in Maricopa County. For example, as of June 1, 2010, hotel bed taxes were 13.27
percent in Phoenix and as of July 1, 2010, hotel bed taxes were 14.92 percent in Scottsdale, according to information
on each city’s Web site, as of September 2010.
Office of the Auditor General
page 3
Nonoperating revenues—
Revenues generated primarily from
taxes and other revenues not
generated from events held at the
facility.
Source: Auditor General staff review of the
Authority’s financial statements for fiscal
year 2009 audited by an independent
certified accounting firm.
previously existing $2.50 flat surcharge for each car rental contract, which was
distributed to the Maricopa County Stadium District (District) to renovate existing
and construct new Cactus League baseball facilities. Although the first $2.50
from each rental car contract continues to be distributed to the District, in
accordance with a 2003 agreement with the District, the Authority now receives
the District’s rental car surcharge revenues that are not needed to retire the
District’s Cactus League bonds. The Authority will receive the full surcharge
when these bonds are retired in June 2019. According to the agreement, the
Authority can use the District’s portion of the surcharge only for Cactus League
projects. From the inception of this tax through June 30, 2010, the Authority has
received approximately $76.7 million in car rental surcharges and an additional
$4.7 million from the Maricopa County Stadium District.
• National Football League (NFL) income tax—All Arizona state income taxes
paid by the Cardinals’ corporate organization, its employees (including its
players), and their spouses. From the inception of this tax in July 2001 through
June 30, 2010, the Authority has received approximately $41.4 million.
• Sales tax recapture—The State Treasurer distributes to the Authority the base
portion of state sales taxes (5 percent) received from Cardinals games, the
Fiesta Bowl, and all other events held at the facility. The tax began on July 1,
2001, and does not have an expiration date. In addition, according to a 2005
agreement with the Authority, the City of Glendale remits to the Authority the
nondedicated portion of its sales taxes (1.2 percent) resulting from transactions
at the facility in exchange for the Authority using $32.3 million of bond proceeds
for site improvement costs that were the City of Glendale’s responsibility. From
its inception in July 2001 through June 30, 2010, the Authority has received
approximately $47.2 million of sales tax recapture revenues, including nearly
$8.8 million from City of Glendale remittances.
Operating revenues:
• Cardinals rent payments—
According to its agreement with
the Authority, the Cardinals pay
annual facility rent starting at
$250,000 in fiscal year 2007 and
increasing by 2 percent annually
through the term of its 30-year
lease, which expires in fiscal year
2036. The Cardinals have the option to extend this lease a total of six times for
5 years each time. The Cardinals have paid a total of approximately $1 million
page 4
State of Arizona
Operating revenues—
Revenues generated from normal
operations of the facility, such as
facility events.
Source: Auditor General staff review of the
Authority’s financial statements for fiscal
year 2009 audited by an independent
certified accounting firm.
in rent for fiscal years 2007 through 2010 and will pay approximately $271,000
in fiscal year 2011.
• Fiesta Bowl payments—According to its agreement with the Authority, the
Fiesta Bowl pays $2.50 for each Fiesta Bowl ticket sold, and the amount
increases by $0.20 per ticket annually through the term of its 30-year lease,
which expires in 2036. For fiscal year 2011 the amount is $3.30 per ticket. The
Fiesta Bowl has the option to extend this lease a total of six times for 5 years
each time. For fiscal years 2007 through 2010, the Authority has received a total
of approximately $778,000 in payments.
• Other event revenues—The Authority receives rental
payments for using the facility, concession commissions,
and facility-use fees for all events held at the facility except
Cardinals home games (see textbox). The facility-use fee
was established to help generate revenues to retire the
Authority’s $53.1 million bond debt, issued to complete the
multipurpose facility (see Chapter 3, pages 41 to 48 for
additional information), and to reimburse the Cardinals for
certain construction and other costs they incurred that were
not their obligation. Beginning in August 2006, when the
facility opened, the facility-use fee for events with estimated
attendance of 18,000 or more consisted of a $4.25 ticket
surcharge for nongeneral admission seating at events,
including Fiesta Bowl games, increasing by $0.25 annually
until fiscal year 2036. For fiscal year 2011 the fee is $5.25 per
ticket. For events with estimated attendance of less than
18,000 or for all general admission events, the facility-use fee
is $1 per ticket, increasing by $1 every 7 years beginning
August 2006. For fiscal years 2007 through 2010, the
Authority has received a total of approximately $3 million in
facility-use fees.
The Cardinals also collect the facility-use fee on their home games; however,
these monies are deposited into a trust account and, according to the facility-use
agreement, are available for debt service payments on the Authority’s $53.1
million bond debt, but only if certain conditions are met. For fiscal years 2007
through 2010, the Cardinals have received approximately $10.2 million. The
Cardinals received payment from the trust for the $10.2 million because the
Authority received sufficient revenues to meet the $53.1 million bond debt
obligations.1
1 According to the facility-use fee trust agreement, a ratio of 74.9 percent was established to determine whether the
Cardinals’ facility-use fees collected and deposited in the trust would be used to help meet the $53.1 million bond debt
service requirements. The Authority annually determines if it received sufficient revenues to pay 74.9 percent of the
$53.1 million bond debt service requirements. If it received enough monies, then the Authority cannot use the facility-use
fees in the trust account for debt service payments. Any amounts not needed for the debt retirement are annually
paid to the Cardinals.
Office of the Auditor General
page 5
Facility-use fee—
Fee included in the price of each
ticket sold for events held at the
facility. There is a facility-use fee on
Cardinals tickets that the Cardinals
retain if not needed to retire the
$53.1 million bond debt. The
Authority’s facility-use fee is paid
on tickets for its events and is used
to service the $53.1 million bond
debt. As of calendar year 2012, the
proceeds of both fees, less any
amounts needed to retire the $53.1
million bond debt, will be used to
reimburse the Arizona Cardinals for
certain expenses incurred that
were not their obligation.
Source: Auditor General staff review of the
facility-use fee agreement.
Authority’s funding priorities
Statutes establish amounts and a priority order for using the Authority’s revenues.
Specifically, A.R.S. §5-835 requires the Authority to maintain a tourism revenue
clearing account for the hotel bed tax and car rental surcharge revenues. In addition,
A.R.S. §5-834 requires the Authority to maintain a facility revenue clearing account
for all other revenues. These statutes further direct how the Authority must distribute
monies monthly in these accounts and specify that lower funding priorities cannot
receive monies until higher funding priorities are fully funded. Figure 1 (see page 7)
illustrates the funding priorities for both the tourism revenue clearing and facility
revenue clearing accounts. In addition, Table 1 (see page 8) illustrates the December
2009 and June 2010 distribution of the tourism revenue clearing account receipts.
The Authority must use the revenues it receives each month for the following
purposes in priority order:
1. Multipurpose facility construction bond debt service—The Authority must
first use its monthly revenues to satisfy all of its debt service obligations for
bonds it issued to pay for its share of the multipurpose facility’s design and
construction costs before it can fund any of its lower priorities. The Authority
issued $277.6 million in bonds to pay its share of facility construction costs in
addition to other cash payments. Monies from both the tourism revenue clearing
account and the facility revenue clearing account are used to pay for this debt
service obligation. The majority of these bonds will be retired by 2031, but some
bonds will not be fully retired until 2036. The Authority projects that in total it will
pay approximately $550.8 million to retire the bonds in 2036, which includes
principal and interest.
2. Tourism promotion—Statute next requires the Authority to distribute monies
from the tourism revenue clearing account to the Arizona Office of Tourism to
promote tourism in Maricopa County. A.R.S. §5-835 requires the Authority to
distribute $4 million annually beginning June 2001, assuming revenues will be
sufficient to make the full distribution, increasing at 5 percent each year. As of
June 30, 2010, the Authority had distributed approximately $44 million and
estimates that it will distribute approximately $82.6 million through fiscal year
2016.1
3. Cactus League promotion—Statute then requires the Authority to contribute to
the construction and renovation costs of new and existing Cactus League
baseball spring training facilities to attract new teams and keep existing teams
in Maricopa County. Tourism revenue clearing account monies are used to meet
the required statutory distribution, including debt service payments for bonds
the Authority issued to help construct a new spring training facility. If the tourism
revenue clearing account monies are insufficient to make these debt service
payments, the facility revenue clearing account can be used to help make these
1 Fiscal year 2016 is the last year for which the Authority has made projections for all of its distributions.
Statutes direct how the
Authority must distribute the
revenues it receives.
page 6
State of Arizona
Office of the Auditor General
page 7
Facility Revenue Clearing Account1
Revenue:
• Sales tax recapture
• NFL income tax
• Facility-generated revenue (revenue from
events held at the multipurpose facility)
Multipurpose facility construction bonds debt service—
Principal and interest payments on debt
Tourism promotion—$4 million for the first 12 months
beginning June 2001; amount increases by 5% annually
Cactus League promotion—$3 million allocated annually
for the first 7 years beginning June 2001; annual allocation
increases up to $11 million annually for the last 4 years;
includes principal and interest payments on Cactus League
facilities bonded debt
Youth and amateur sports—$1 million allocated for the
first 12 months beginning June 2001; amount increases by
$100,000 annually
Arizona Sports and Tourism Authority operations,
including facility operations
Reserves—Any money remaining after operating costs are
paid is directed into three reserve accounts:
• Youth and Amateur Sports
• Operating
• Capital
Distribution Priorities
Figure 1: Revenue Distributions in Statutory Priority Order
Tourism Revenue Clearing Account
Revenue:
• 1% hotel bed tax
• 3.25% car rental surcharge
1 Revenue in the Facility Revenue Clearing Account is used first to make principal and interest payments on the multipurpose
facility bonded debt, then for the Authority’s Cactus League baseball facilities bonded debt if the Tourism Revenue Clearing
Account lacks sufficient monies to make these payments. Any Facility Revenue Clearing Account monies not needed for debt
payments are available for authority operations, including operating and capital reserves.
Source: Auditor General staff analysis of A.R.S. §§5-834, 8-835, and 5-836.
State of Arizona
page 8
payments.
For example, as shown in Table 1, in December 2009, the Authority did not have
sufficient tourism revenue clearing account receipts to meet its monthly Cactus
League bond debt service requirements; therefore, the Authority used the facility
revenue clearing account to meet the monthly debt service requirement.
Statute requires the Authority to spend $205 million beginning June 2001
through 2031 for Cactus League promotion if sufficient revenues are available.
As of June 30, 2010, the Authority had distributed approximately $29.1 million
for Cactus League promotion from its tourism and facility revenue clearing
accounts. The Authority also distributed approximately $4.7 million for Cactus
league promotion that it received from the Maricopa County Stadium District
(District). Under an agreement with the District, the Authority receives monies
that the District does not need to retire its bond debt. The Authority projects
distributing approximately $32.4 million from its tourism and facility revenue
Table 1: Examples of Monthly Distributions from the Tourism Revenue Clearing Account
December 2009 and June 2010
1 The Authority did not have sufficient Tourism Revenue Clearing Account receipts to meet the monthly statutorily required distribution in
December 2009. Because the Authority issued subordinate bonds to help construct a new spring training facility, it must fund its bond
debt service requirements. Consequently, it distributed approximately $302,000 from its Facility Revenue Clearing Account to meet the
requirements.
2 Amount is based on one-twelfth of the Authority’s adopted fiscal year 2010 budget in accordance with A.R.S. §5-835(B)(5).
3 Monthly statutorily required distribution amount is the amount required if the youth and amateur sports reserve is not fully funded.
According to the Authority’s records, the Authority was evaluating the reserve on an annual basis rather than a monthly basis; however,
in November 2010, the Authority adjusted the June 2010 distribution to properly distribute to the reserve the required amount. See
Chapter 2, pages 27 through 40, for additional information.
4 The statute does not specify monthly requirements for these reserves.
Source: Auditor General staff analysis of A.R.S. §§5-835 and 5-838, and the Authority’s fiscal year 2010 general ledger and November 2010
adjusting entry.
Tourism Revenue Clearing Account receipts $ 1,005,154 $ 3,216,166
Distributions:
Multipurpose facility construction bond debt service $ 783,100 $ 783,100 $ 7 83,100
Tourism promotion (December) 222,054 4 92,485
Tourism promotion (June) 517,109 5 17,109
Cactus League promotion - 1 333,333 3 33,333
Youth and amateur sports (December) 1 50,000
Youth and amateur sports (June) 158,333 1 58,333
Operations 867,036 8 67,036 2
Youth and amateur sports reserve (December) 1 41,667 3
Youth and amateur sports reserve (June) 150,000 1 50,000 3
Operating reserve 407,255 NA 4
Capital reserve NA 4
Total distribution $ 1,005,154 $ 3,216,166
Required
Distribution if
Revenues Are
Sufficient
Priority Distribution
December
2009
June
2010
Office of the Auditor General
page 9
clearing accounts and approximately $4 million that it projects receiving from the
District for Cactus League promotion for fiscal years 2011 through 2016.
4. Youth and amateur sports—After Cactus League promotion, statute requires
the Authority to fund youth and amateur sports facilities and programs with
tourism revenue clearing account monies. A.R.S. §5-835 required initial annual
funding of $1 million beginning June 2001, increasing by $100,000 each year,
and will require the Authority to spend $73.5 million promoting youth and
amateur sports through fiscal year 2031 if sufficient revenues are available. As
of June 30, 2010, the Authority had distributed approximately $11.8 million and
estimates it will distribute approximately $17.6 million through fiscal year 2016.
5. Operations and administration—After funding the previous priorities, statute
requires funding the Authority’s approved annual operating budget; including
the facility’s annual operating budget. Specifically, as shown in Table 1 (see
page 8), the operations account does not receive a monthly distribution from the
tourism revenue clearing account until all higher priorities have been fully
funded. Similarly, the operations account does not receive a monthly distribution
from the facility revenue clearing account until all of the bonds have been fully
funded. The approved operating budget for fiscal year 2011 is approximately
$11 million.
6. Youth and amateur sports reserve—After operations, statute requires the
Authority to fund a reserve account for youth and amateur sports. Beginning in
May 2002, monies in this account must equal the previous year’s required
distribution amount, if sufficient revenues are available to meet this requirement.
As of June 30, 2010, the Authority has distributed approximately $1.9 million to
this reserve. However, the Authority has evaluated the reserve on an annual
basis rather than monthly, as required by statute (see Chapter 2, pages 27 to
40).
7. Operating account, including reserves—If monies remain after meeting the
previous priorities, according to statute, the Authority must deposit any
unallocated monies in its operating account. Statute requires the Authority to
establish two reserves in its operating account, one for operations and one for
repairs and other long-term multipurpose facility costs. Both tourism and facility
revenue clearing account monies contribute to these reserves. Although statute
does not establish a reserve amount for operations, the Authority’s goal is to
maintain an operations reserve equal to the prior year’s operating budget. As of
June 30, 2010, monies held in reserve for operations totaled nearly $9 million.
The Authority projects that this reserve will be reduced by approximately $7.7
million between fiscal years 2011 and 2014 because of revenue shortfalls (see
Chapter 2, pages 27 to 40).
Statute requires the
Authority to fund reserves
for youth and amateur
sports, operations, and
multipurpose facility repair,
replacement, and removal
costs.
State of Arizona
page 10
Further, statute directs the Authority to establish a reserve of $25 million adjusted
for inflation each year after 2001 for facility repair, replacement, and removal
costs. However, the Authority reported that revenues have been insufficient to
fund this reserve.
Beginning in fiscal year 2010, the Authority did not receive sufficient revenues to
make monthly maximum statutorily required distributions for tourism promotion,
Cactus League promotion, youth and amateur sports, operations, and required
reserves. For example, as shown in Table 1 (see page 8), the Authority did not have
sufficient tourism revenue clearing account monies to meet all of the maximum
statutorily required distributions in December 2009. It projects similar outcomes
through fiscal year 2016. See Chapter 2, pages 27 to 40, for information on the
Authority’s revenue shortfall.
Authority’s financial activities
As shown in Table 2 (see page 11), the Authority’s assets at June 30, 2010, included
$426.7 million of net capital assets and $31.3 million of cash and cash equivalents
that compose approximately 97 percent of total assets. Its net capital assets included
the cost of the University of Phoenix Stadium building, land where the facility sits, and
furniture and equipment, less accumulated depreciation. Of the $31.3 million cash
and cash equivalents, only approximately $8.9 million was available for its general
operations and about $700,000 was designated for facility operations. The remaining
$21.7 million was restricted for bond debt service payments and a bond reserve,
youth and amateur sports distribution, tourism and facility revenue clearing account
distributions, and ticket sales held for promoters.
Table 2 (see page 11) also illustrates that more than 97 percent of the Authority’s total
liabilities at June 30, 2010, included the following:
• $320.4 million of bond-related liabilities, including principal and interest for the
senior and subordinate bonds issued for the University of Phoenix Stadium and
Cactus League promotion, respectively, and
• $136.7 million of Cactus League commitments to the Cities of Tempe,
Scottsdale, Glendale, and Goodyear to fund part of the construction or
renovation costs for their Cactus League team spring training facilities.
As shown in Table 3 (see page 12), the Authority received $34.5 million from non-operating
revenues in fiscal year 2010. Nearly all of these revenues comprised hotel
bed taxes, car rental surcharges, sales tax recapture, and NFL state income taxes.
Also, as shown in Table 3, the Authority’s nonoperating expenses during fiscal year
2010 were as follows:
• $16.3 million for bond interest and related expenses;
Office of the Auditor General
page 11
Table 2: Schedule of Net Assets
As of June 30, 2008, 2009, and 2010
(In Millions)
1 Consists of monies received that have not been distributed for statutory funding priorities as described on pages 6 through
10.
2 Beginning in fiscal year 2009, as a result of the implementation of a new accounting standard, the amount includes a liability
for the value of the Authority’s senior variable bond swap agreement that it entered to protect against interest rate increases.
Because interest rates have fallen significantly in the past years, the agreement had a negative fair value to the Authority
resulting in a liability of approximately $3.9 and $6.9 million at June 30, 2009 and 2010, respectively.
Source: Auditor General staff analysis of the Authority’s fiscal year 2009 and 2010 financial statements audited by an independent
certified public accounting firm; fiscal years 2008 through 2010 general ledgers; fiscal year 2009 University of Phoenix
Stadium financial statements audited by an independent certified public accounting firm; and fiscal year 2010 Working
Trial Balance reports for the Authority and the University of Phoenix Stadium.
Assets:
Cash and cash equivalents -
Restricted for bond reserve and payments $ 12.3 $ 14.3 $ 14.8
Restricted for youth and amateur sports 3.8 3.7 3.6
Restricted for Tourism and Facility
Revenue Clearing Account distributions 1 3.3 2.6 3.1
Restricted ticket sales held for promoters 4.2 0.2
Restricted for construction 0.3
Designated for facility operations 0.2 0.5 0.7
Unrestricted general operating 8.9 5.4 8.9
Total cash and cash equivalents 28.8 30.7 31.3
Capital assets, net of accumulated depreciation 457.7 442.2 426.7
Deferred bond issue costs, net 8.9 8.4 7.9
Hotel tax, car rental surcharge, and sales tax
recapture receivables 4.9 4.1 5.6
Other 0.8 0.7 0.8
Total assets 501.1 486.1 472.3
Liabilities:
Bond-related 2 319.2 321.6 320.4
Cactus League payable 128.6 130.6 136.7
Arizona Cardinals payable 6.9 7.2 7.6
Accounts payable and accrued expenses 3.2 5.9 2.0
Youth and amateur sports payable 3.8 1.9 2.3
Other 1.3 0.7 1.7
Total liabilities 463.0 467.9 470.7
Net assets $ 38.1 $ 18.2 $ 1.6
2008 2009 2010
State of Arizona
page 12
Table 3: Schedule of Revenues, Expenses, and Changes in Net Assets
Fiscal Years 2008 through 2010
(In Millions)
1 Amounts include event revenues and expenses, including monies collected at events that are paid to event promoters.
2 Amount is less than $50,000 and does not appear in this table because amounts are shown in millions.
3 Amounts include amortization of deferred bond issue costs and various fees related to the Authority’s variable interest
rate bonds. Beginning in fiscal year 2009, it also includes the change in fair value for the Authority’s senior variable bond
swap agreement. See footnote 4 below for additional information.
4 Amount is an adjustment the Authority made to implement a new government accounting standard. The effect of
implementing the standard is that, beginning in fiscal year 2009, the Authority now reports the changes in fair value for
its senior variable bond swap agreement.
Source: Auditor General staff analysis of the Authority’s fiscal years 2009 and 2010 financial statements audited by an
independent certified public accounting firm; fiscal years 2008 through 2010 general ledgers; and fiscal year 2010
Working Trial Balance reports for the Authority and University of Phoenix Stadium.
Operating revenues and expenses:
Stadium revenues 1 $ 13.1 $ 10.3 $ 23.2
Less: stadium expenses 1 22.7 19.9 28.2
Operating loss before depreciation
and authority operating expenses 9.6 9.6 5.0
Depreciation 15.6 15.6 15.5
Authority operating expenses 1.2 1.1 1.1
Operating loss 26.4 26.3 21.6
Nonoperating revenues:
Hotel bed taxes 15.1 12.4 11.5
Rental car surcharges 10.3 8.8 9.3
Sales tax recapture 6.5 7.2 7.3
NFL income taxes 4.1 4.2 6.4
Other 1.0 0.6 - 2
Total nonoperating revenues 37.0 33.2 34.5
Nonoperating expenses:
Bond interest and other related expenses 3 16.5 18.4 16.3
Cactus League facility expense 6.2
Other interest 1.8 3.6 6.3
Arizona Office of Tourism distribution 5.4 5.7 5.3
Youth and amateur sports awards 2.0 - 2 1.6
Total nonoperating expenses 31.9 27.7 29.5
Net nonoperating revenues 5.1 5.5 5.0
Decrease in net assets 21.3 20.8 16.6
Net assets, beginning of year 59.4 38.1 18.2
Restatement, change in accounting policy 4 0.9
Net assets, end of year $ 38.1 $ 18.2 $ 1.6
2008 2009 2010
Office of the Auditor General
page 13
• $6.3 million for other interest accrued for Cactus League promotion and youth
and amateur sports owed to cities; and
• $6.9 million for tourism promotion and youth and amateur sports grants.
Table 3 also shows that the Authority did not have sufficient facility operating revenues
to cover the related operating expenses in fiscal years 2009 and 2010, which resulted
in an operating loss of $9.6 million and $5 million, respectively, before depreciation
and authority operating costs. The Authority used its nonoperating revenues and
operating reserve to both fund the facility operating losses and pay for its own annual
operating expenses of approximately $1.1 million for fiscal years 2009 and 2010.
Organization and staffing
The Authority is governed by a nine-member board of directors. The Governor
appoints five board members who represent the tourism industry, hotel and motel
industry, youth sports organizations, and Major League Baseball spring training
organizations. The Senate President and House Speaker each appoint two members
who cannot both be from the same political party. All members serve 5-year terms
and may be reappointed for one full subsequent term.
As of October 9, 2010, the Authority had two full-time employees and a contracted,
part-time consultant. Specifically, the Authority has a president/chief executive officer
and an office manager who are employees of the Authority. The Authority also uses
a part-time consultant as its chief financial officer. The Authority mainly uses
contracted services for managing, promoting, operating, and maintaining the facility
and uses outside legal representation.
Scope and objectives
Laws 2010, Ch. 5, directed the Office of the Auditor General to review and analyze
17 specific areas related to authority responsibilities and operations. Appendix A
(see pages a-i through a-ii) contains the complete list of these 17 areas. Auditors
addressed these 17 items in the following 6 chapters. Where applicable,
recommendations have been made in the chapters.
The methods used to develop and analyze the information discussed in this report
are discussed in Appendix E (see pages e-i through e-iii).
The Auditor General and staff express appreciation to the Authority’s Board of
Directors, Chief Executive Officer, and staff for their cooperation and assistance
throughout the audit.
State of Arizona
page 14
Concessions procurement largely adhered to
best practices; additional policies and
procedures to guide future procurements would
be helpful
The Arizona Sports and Toursim Authority (Authority) has
established a procurement policy, and more comprehensive
procurement policies and procedures could help ensure that
future procurements consistently adhere to procurement best
practices. The Authority is not required to follow the State’s
procurement laws and has instead established a procurement
policy that specifies when it will issue a request for proposals
(RFP) and that it will monitor all contracts. Additionally, following
procurement best practices can help produce quality contracts.
Auditors reviewed the Authority’s procurement of concessionaire
services and financial assistance awarded in February 2010
and found that it largely adhered to procurement best practices.
For example, the Authority developed and issued an RFP that
addressed its business needs and also used an appropriate
evaluation process. However, the RFP did not specify the
weighting factors that would be used to evaluate the proposals.
Auditors’ review of other selected contracts the Authority
entered into between 2000 and 2009 also identified some
deviations from procurement best practices. To help ensure that
its future procurements consistently adhere to procurement
best practices, the Authority should adopt and implement
additional procurement best practices.
Authority has its own procurement policy
As a separate legal body from the State, the Authority is exempt from some
requirements that state agencies must follow, including state procurement laws.
Specifically, A.R.S. §5-802 established the Authority as a separate legal body with all
Office of the Auditor General
page 15
Legislative audit mandate
The audit shall review and evaluate:
• All contracts entered into by the
Authority during calendar years
2008 and 2009, including
contracts with concessionaires
and other providers of food,
beverage, and other services at
the multipurpose facility
constructed pursuant to Arizona
Revised Statutes (A.R.S.) §5-807.
• The procurement process used
by the Authority for soliciting bids
from vendors and awarding
contracts for acquiring materials,
services, construction or
construction services, including a
description of requirements,
selection and solicitation of
sources, preparation and award
of contracts, and all phases of
contract administration.
Chapter 1
As a separate legal body
from the State, the Authority
is exempt from following
state procurement laws.
of the rights, powers, and immunities of a municipal corporation.
Although the Authority must comply with open meeting and public
records laws, its status as a separate legal body exempts it from other
requirements that state agencies must follow.
In its March 2004 performance audit of the Authority, the Office of the
Auditor General recommended that the Authority establish policies and
procedures to guide its procurement activities (see Auditor General
Report No. 04-01). Specifically, the 2004 audit found that the Authority
had entered into several agreements totaling millions of dollars of
services, yet did not have a formal procurement process. In response to
this recommendation, the Authority adopted the procurement policy
shown in the textbox.
As illustrated in Table 4 (see page 17), the Authority entered into six new
contracts between January 1, 2008 and June 30, 2010. As of June 30,
2010, the Authority had paid a total of $566,058 for the services provided
through these contracts. Further, the Authority estimated that the two
contracts it entered into in February 2010, which do not require payment
from the Authority but instead provide revenues to the Authority, would
be valued at a minimum of $1.25 million annually, as stipulated in the
contracts.
Following procurement best practices can
help produce quality contracts
Other organizations, including Arizona state agencies and municipalities
that are not required to follow state procurement statutes and regulations,
have procurement policies that are more detailed and prescriptive than
the Authority’s policy. These more detailed policies generally incorporate
a set of “best practices,” such as those outlined by the National State
Auditors Association (NSAA) or required by Arizona procurement code,
which help government entities to conduct effective and efficient
procurements that can lead to quality contracts. For example, best
practices established by the NSAA help organizations or government
entities to evaluate existing contracting policies and procedures and
determine which practices are more likely to result in an efficient, effective, and
accountable procurement process.1 Following best practices, like those
recommended by the NSAA or the state procurement code, helps to ensure the
highest-quality product or service is received at the most economical price, and
helps to ensure fair competition, prevent fraudulent activities, and protect the entity
from the appearance of fraud. Additionally, Arizona’s Administrative Code, Title 2, Ch.
7 (Arizona procurement code), includes detailed examples of best practices
1 National State Auditors Association. (2003) Contracting for services: A National State Auditors Association best practices
document. Lexington, KY: Author.
State of Arizona
page 16
e
Authority procurement policy
The Authority’s procurement policy
specifies that the Authority:
• Issue an RFP when contracting
for general goods or services that
have either a total acquisition or
contract value of $25,000 or
more. If the Authority determines
that the services are specialized
or competition is not practicable,
the Authority will not issue an
RFP. In these cases, the Authority
will use written quotes or other
documentation to support its
decision.
• Will not issue an RFP for goods
and services with a contract value
totaling $25,000 or less that are
included in the Authority’s annual
adopted budget. In situations
where an RFP is not issued, the
Authority will instead use written
or verbal quotations to prove that
a competitive price was obtained.
• Authorizes the Chief Executive
Officer to enter into contracts up
to $100,000 without prior Board of
Directors (Board) ratification.
These contracts/agreements are
due to the Board at the next
board meeting following the
contract’s execution.
• Will monitor all contracts entered
into and verify that, prior to
making contractual payments, the
goods/services have been
provided/received according to
the terms and conditions set forth
in the contract.
Source: Auditor General staff review of the
Authority’s procurement policy no. 300.01.
procedures that most Arizona state agencies are required to use. Figure 2 (see page
18) lists several procurement best practices that auditors reviewed, including
procedures for developing and issuing a Request for Proposal (RFP), evaluating
contract proposals, and developing and monitoring the contract.
Concessions procurement followed Authority’s policy
and largely adhered to best practices
The Authority’s most recent procurement of concessionaire services for the
multipurpose facility, which culminated in the issuance of two contracts in February
2010, largely adhered to procurement best practices reviewed by auditors. In 2009,
the Authority decided to issue an RFP for both its concessionaire services and to
assist in improving its financial situation. Auditors’ review of this procurement
determined that the Authority’s process largely adhered to procurement best
practices, including the use of an evaluation review team and evaluation instrument.
Office of the Auditor General
page 17
Table 4: Contracts Entered into Subsequent to January 1, 2008
As of June 30, 2010
1 Amounts paid by the Authority on these contracts between January 1, 2008 and June 30, 2010.
2 Amount is the CEO’s annual compensation and includes a car allowance. The total amount paid by the Authority since the CEO began
working for the Authority in June 2008 through June 30, 2010 is $356,250.
3 In addition to this amount, the Authority paid $2,940 to this consultant in February 2009 for his review of the Authority’s concessions
contract.
4 Amount is an advance against future concessions revenues that was paid to the Authority during fiscal year 2010 after the contract was
signed. In addition, the concessionaire provided a $1 million zero-percent interest rate loan that may not have to be repaid. See Chapter
2, pages 28 to 30, for additional information.
5 Amount is the guaranteed operational revenue increases and/or cost reductions that the event manager, an affiliate of the concessions
vendor, agreed to provide to the Authority annually. This contract is only effective as long as the concessionaire contract is effective. See
Chapter 2, page 30, for additional information.
Source: Auditor General staff review of the Authority’s fiscal years 2008 through 2010 general ledger; new contracts entered into between
January 1, 2008 and June 30, 2010; and an authority-prepared contract listing.
Date
Contract Type Signed
Chief Executive Officer (CEO) June 24, 2008 $ 171,000 2
Lobbyist/Public Relations/Commuity Outreach April 15, 2009 96,000
RFP consultant August 4, 2009 12,435 3
Interim Chief Financial Officer October 29, 2009 101,373
Concessionaire February 9, 2010 $ 500,000 4
Event management February 9, 2010 750,000 5
to Authority
Amount
Impact to Authority
Amount
Advanced or
Paid by Guaranteed
Authority1
However, this procurement also deviated from two best practices. For example, the
Authority did not include specific evaluation weighting factors for the criteria in its RFP
and did not follow best practice recommendations for the receipt/opening of
proposals.
Authority determined new concessionaire services contract could
help financial situation—As reported in the Office of the Auditor General’s
March 2009 performance audit of the Authority (see Report No. 09-04), the
Authority was facing a projected financial shortfall of possibly as much as $29
million by 2014. The Authority had taken various actions, including reducing
operating expenses, to begin to address its financial situation. According to
page 18
State of Arizona
Figure 2: Selected National State Auditors Association Best Practices in
Contracting for Services
Source: Auditor General staff review of selected best practices from National State Auditors Association. (2003).
Contracting for services: A National State Auditors Association best practices document. Lexington, KY: Author.
reports for the Authority and the University of Phoenix Stadium.
Request for Proposal (RFP) process—Allows the agency to define the acquisition and proposal
evaluation process. The RFP should:
􀁸􇡉 Identify and address the business needs;
􀁸􇡓 State the performance requirements, scope of services, evaluation criteria, and weighting
factors;
􀁸􇡁 Avoid specifications that favor a particular bidder or brand; and
􀁸􇡄 Define communication procedures to ensure potential bidders have access to the same
information.
Award decision process—Ensures vendor proposals are responsive to the agency’s needs, are
consistently and objectively evaluated, and that contracts are awarded fairly. The award process
should:
􀁸􇡉 Include a proposal receipt process that ensures that proposals are not opened
prematurely and not accepted after the due date;
􀁸􇡕 Use an evaluation review team comprising individuals trained to evaluate and score the
proposals and free of impairments to independence.
􀁸􇡕 Use fixed, clearly defined, and consistent scoring scales to measure the proposal against
the criteria specified in the RFP; and
􀁸􇡄 Document the award decision and keep supporting materials.
Contract provisions—Protect the interests of the agency; identify the responsibilities of the
parties to the contract; define what is to be delivered; and document the mutual agreement,
substance, and parameters of what was agreed upon. Specifically, the contract should:
􀁸􇡄 Define the scope of work, contract terms, allowable renewals, and procedures for any
changes;
􀁸􇡐 Provide specific measurable deliverables and reporting requirements; and
􀁸􇡄 Describe the methods of payment and payment schedules.
Monitoring—An essential part of the contracting process; provides assurance that the agency
receives what it contracts for. Monitoring ensures that:
􀁸􇡃 Contractors comply with contract terms;
􀁸􇡐 Performance expectations are achieved; and
􀁸􇡐 Problems are identified and resolved.
authority officials, the Authority also began considering additional options to
address its financial situation, including using its concessionaire contract. After
considering various alternatives, on July 20, 2009, the Authority’s Board of
Directors directed its staff to develop a competitive RFP for concessionaire
services and financial assistance. See Appendix B, pages b-i through b-iii, for
additional information on events leading to the issuance of the RFP.
Authority’s concessions and financial assistance procurement
process largely adhered to procurement best practices reviewed
by auditors—As directed by its Board, in August 2009, the Authority initiated a
competitive procurement process for concessionaire services and financial
assistance. Auditors reviewed the Authority’s RFP process and determined that it
largely adhered to procurement best practices. Specifically, the Authority:
• Developed an RFP consistent with its business needs—Consistent with
best practices, the Authority developed an RFP that addressed the Authority’s
business needs and specified both the scope of services to be provided and
expected performance requirements. For example, the RFP objectives clearly
stated a requirement for continued excellence in concession services for all
facility partners, as well as financial assistance for the Authority. Additionally,
the Authority specified the scope of work within the RFP by requiring all
proposals to comply with the same general terms/conditions in the existing
concessions contract and made the existing concessions contract available to
proposers. Also consistent with best practices, the Authority’s RFP avoided
specifications that favored a particular bidder or brand and defined
communication procedures to help ensure bidders had equal access to
information. Further, to ensure equal access to information, the Authority
restricted all questions and answers regarding the RFP to a public forum
through its Web site and implemented standardized facility tours for potential
bidders. Finally, in preparation for the finalists’ oral presentations, written
directions from authority staff to its board members specified that all
discussions regarding proposals were prohibited outside of board meetings.
• Used an appropriate evaluation process—The Authority’s evaluation
process consisted of selecting a bid review team, developing an evaluation
instrument, scoring the proposals and recommending finalists, hearing oral
presentations, and determining the final award. Specifically:
° Bid review team complied with best practices—The Authority’s bid
review team (review team) complied with guidelines recommended by the
NSAA. Specifically, the NSAA recommends using an evaluation review
team comprising individuals who are trained to evaluate and score the
proposals and who are free of impairments to independence. The
Authority’s review team, which developed the evaluation instrument and
the instructions for its use, consisted of three members—the Authority’s
Chief Executive Officer (CEO) and its interim Chief Financial Officer (CFO),
and an independent consultant. The review team was responsible for
The Authority developed a
concessions and financial
assistance RFP that
addressed its business
needs and specified the
scope of services and
performance requirements.
Office of the Auditor General
page 19
evaluating bids, and the independent consultant was also responsible for
making a final award recommendation to the Board.
° Review team developed appropriate evaluation instrument—Consistent
with procurement best practices recommended by the NSAA, the
Authority’s bid review team developed an evaluation matrix that was based
on RFP requirements and used consistent scoring scales. Specifically, the
Authority’s RFP required respondents to address questions and provide
evidence regarding the respondent’s financial situation and operational
performance, and also required the submittal of several supporting
documents. The review team used these three categories as the criteria in
the matrix it developed to evaluate the proposals received by the Authority
(see textbox).
In addition, the NSAA recommends the use of a fixed, clearly defined,
and consistent scoring scale for evaluation. The review team’s evaluation
matrix was designed to assess proposals against the criteria using a 1
to 5 scoring scale, with the rating of 5 indicating an excellent response,
and a rating of 1 indicating a poor response. Each bid review team
member could also provide clarifying notes for scores given and scores
were totaled to arrive at a ranking for each proposal.
° Bid review team appropriately reviewed proposals—Auditors’ review of
the review team’s proposal evaluation process determined that the
process appeared to be appropriate. Specifically, the review team used the
evaluation instrument discussed previously to evaluate the proposals
received. During the first evaluation phase, which took place between
August and December 2009, the team members were initially required to
independently review and score each of the proposals received.
page 20
State of Arizona
Criteria used in evaluation instrument
The types of criteria used to evaluate proposals included:
• Financial criteria—Consists of the respondent’s financial assistance options
proposed; proof of the respondent’s ability to fulfill proposed assistance; the ability to
provide excellent concessions services to all facility partners; and compliance with the
Authority’s IRS and tax-exempt bond requirements.
• Operational criteria—Consists of the number of years the respondent had been in
operation; organizational stability relative to mergers or acquisitions; the number and
types of facilities currently under contract and length of contracts; history of the
organization’s growth or decline; and the creativity of the operational plan relative to
the potential for revenue increases.
• Compliance with RFP requirements—Consists of an evaluation of the quality of
items required by the RFP and provided in the proposal, such as letters of
recommendation, audited financial statements, and a list of corporate officers with a
summary of their related food service industry experience.
Source: Auditor General staff review of the Authority’s concessionaire proposal evaluation instruments.
Office of the Auditor General
page 21
Independently scoring the proposals with an appropriate evaluation
instrument complies with best practices in that review team members
make their own decisions independent from other members’ decisions.
Later, the individual review team members’ evaluations were compiled into
a final summary to indicate the review team’s ranking for this evaluation
phase.
The review team evaluated five proposals using its evaluation instrument
and the process described above. From this evaluation, the review team
recommended four bidders as finalists, who would move on to make
oral presentations to the full Board.1
° Contracts awarded according to independent consultant’s
recommendation—The review team received the best and final terms
from the RFP finalists on January 15, 2010. In addition, on January 16,
2010, the Authority’s interim CFO analyzed the financial benefits of each of
the best and final offers to determine which of these offers would provide
the best financial assistance to the Authority. On January 20, 2010, the
independent consultant presented his final recommendation for contract
award to the full Board, based on his evaluation of written and oral
presentations, best and final offers, and the interim CFO’s financial analysis
of best and final offers. The consultant stated that all three finalists had the
ability to manage concessions; however, the company he recommended
to the Board for contract award had the most to gain or lose based on
concessions performance and would also provide the best financial
assistance to the Authority.
On January 20, 2010, the Board voted to enter into contract negotiations
for 30 days with the company that the consultant recommended, with
the provision that if a satisfactory contract could not be executed within
that time frame, the Board would enter into a contract with the company
the consultant recommended as his second choice. Within the 30-day
period, the Authority executed two contracts with the recommended
company—one contract to provide concessions services, which was
modeled on the prior concessions contract, and a second, interdependent
contract to provide the Authority financial assistance through additional
event management services.
• Contract provisions comply with best practices—Auditors’ review of the
two contracts that resulted from the concessions RFP process found that
these contracts’ provisions comply with best practices. Specifically, according
to the NSAA’s best practices, contract provisions should define the scope of
work, contract terms, allowable renewals, and procedures for changes;
provide specific measurable deliverables and reporting requirements; and
1 The review team selected four finalists to make oral presentations to the full Board. However, two of these companies
began merger negotiations and decided to make one presentation instead of two. Therefore, there were a total of three
bidders that made oral presentations to the Board.
The two contracts resulting
from the concessions and
financial assistance
procurement adhere to best
practices.
State of Arizona
page 22
describe the methods of payment and payment schedules. Auditors’ review of
the concessions services contract, entered into by both the Authority and the
Cardinals, and the Authority’s event management contract determined that
both meet these selected best practices.
Two best practices not followed—Although most of the Authority’s concessions
procurement process adhered to best practices auditors reviewed, two of its
processes deviated from these best practices. Specifically:
• RFP did not specify evaluation weighting factors—Contrary to best
practices, the Authority’s RFP did not specify the evaluation weighting factors
that would be used to evaluate and eventually award a contract. The purpose
of providing specific evaluation weighting factors in the RFP is to allow all
participants equal access to the factors that will be considered, prior to
submitting a bid, which helps ensure that the entity receives bids that are
responsive to its business needs. Therefore, the Authority should ensure that
all future RFPs contain specific evaluation weighting factors that will be used
to evaluate and award contracts.
• Authority’s proposal receipt process not consistent with best practices—
Although the Authority complied with best practices by clearly identifying in its
RFP a specific date and time to submit proposals, the Authority did not adhere
to other best practices related to proposal receipt and storage. Specifically,
best practices by NSAA and the state procurement code include using a log
to record the receipt of proposals; storing the sealed bids in a secured
location; and opening the proposals in the presence of witnesses. The
Authority did not follow these best practices and could not provide
documentation regarding the opening process that took place. Although the
Authority has only a small number of staff and reported that all proposals were
received prior to the submission deadline, following these best practices for its
future procurements can help to assure the public and bidders that proposals
are received in a timely manner, the proposers’ information remains confidential,
and all bids are opened and considered at the same time.
Additional procurement policies and procedures would
help ensure future procurements also follow best
practices
Auditors’ review of other contracts entered into by the Authority also suggests that
additional procurement policies and procedures would help ensure that future
procurements also follow best practices. Specifically, the Authority should more
closely follow its policy of using competitive procurement processes for all contracted
services that exceed its $25,000 threshold or document the reasons a competitive
Office of the Auditor General
page 23
procurement would be impracticable. Additionally, the Authority should develop and
implement additional procurement policies and procedures that incorporate best
practices recommended by the NSAA to help guide future procurements. These
additional policies and procedures would be especially important given the small
number of authority staff, potential for turnover among the staff, and the infrequent
nature of conducting procurements that would benefit from following procurement
best practices. These new procedures should also ensure that all of its contracts
have specific contract language that defines current payment terms.
Contrary to its policy, Authority did not competitively procure some
services—Auditors reviewed four contracts the Authority entered into during
2008 and 2009, as well as the two contracts the Authority entered into in 2010 as
a result of its concessions procurement process. Additionally, auditors reviewed
the Authority’s contract for its primary legal services, initially entered into in
calendar year 2000. Auditors found that the Authority had used a competitive
procurement process for only two of the five contracts that should have been
competitively bid according to the Authority’s procurement policy. The Authority
did not competitively bid the other three contracts or document the reasons a
competitive procurement would be impracticable. Specifically:
• Primary legal services contract—The Authority spent a total of $604,622 for
its primary legal services during fiscal years 2008 through 2010. This amount
exceeds the $25,000 policy threshold that the Authority has established for
requiring competitive bids. According to authority officials, an RFP for its
primary legal services was not issued because bringing in another legal
services provider would put the Authority at a disadvantage because the
Authority’s primary legal counsel knows the Authority’s history and understands
its complex bond funding and financial obligations. Although the Authority has
a signed contract for the legal services it receives from its primary legal
contractor, this contract is dated August 2000 and the Authority did not provide
any documented or signed updates to this contract after November 2000,
even though there have been changes to its legal services costs.
• Lobbying contract—Likewise, the Authority did not competitively bid for its
lobbying services even though it spent a total of $96,000 for these services in
fiscal years 2009 and 2010. Rather than issuing an RFP for these services, the
Authority obtained these services through three separate contracts, two of
which did not have a termination date. According to authority officials, the
Authority did not issue an RFP for these services because the contracts could
be canceled on a 30-day notice and each 30-day time frame is below the
$25,000 RFP threshold. However, the Authority has incurred costs for at least
one of these contracts in excess of its $25,000 threshold.
• Third-party interim CFO contract—Finally, the Authority contracted with a
financial services company to receive employment services to fill the position
of the Authority’s interim CFO, and from October 21, 2009 through June 30,
The Authority did not
competitively bid some
contracts reviewed by
auditors or document why a
competitive procurement
was not used.
State of Arizona
page 24
2010, the Authority paid nearly $101,400 for these services. According to an
authority official, at that time, a formal RFP process was not practical because
of the pending loss of its CFO, its only business office employee. In an effort
to ensure imperative day-to-day operations continued, the Authority engaged
the services of a well-known financial services firm.
According to the NSAA, “without proper awarding practices, there is little
assurance an agency is selecting the most qualified vendor at the best price.
Further, contracting decisions may not be defendable if challenged.”1 Therefore,
to help ensure that it procures the most qualified vendors at the best price, the
Authority should follow its procurement policies and issue RFPs for contractual
services totaling more than $25,000 or document why a competitive procurement
would be impracticable in these types of situations.
Authority contracts met selected best practices reviewed by auditors,
but one improvement is needed—Auditors assessed the content of the
Authority’s seven contracts against selected NSAA best practices and state
procurement rules and found that these contracts met these recommended best
practices, with one exception. For example, auditors found that the Authority’s
contracts define the term and scope of work; provide specific measurable
performance and reporting requirements; and clearly define compensation,
including incentives or penalties.
However, the Authority’s primary legal services contract, dated August 2000, has
not been updated to reflect revised payment terms, which would be needed by the
Authority to ensure payments are made according to agreed-upon contract
specifications. Neither the Authority nor its primary legal counsel were able to
provide auditors with an updated agreed-upon pricing schedule. Therefore, the
Authority should ensure that all of its contracts have specific contract language
that defines current payment terms.
Authority appropriately monitors its contracts—The Authority’s contract
monitoring appears to be appropriate for its contracts that contain specific
performance requirements, given the limited resources available. The Authority’s
staff consists of two full-time employees (a CEO and an office manager) and a
contracted, part-time, interim CFO. These staff are responsible for monitoring
several contracts. Additionally, the Authority has contracted with a facility manager
that helps the Authority by operating the facility and monitoring contracts that are
specific to facility operations, including the Authority’s 2010 concessions services
contract. For more information about the Authority’s contract monitoring of the
facility manager, see Chapter 4, pages 49 to 56.
The NSAA’s best practices for contract monitoring note that it is an essential part
of the contracting process and provides assurance that the agency receives the
contracted services. Additionally, monitoring ensures that contractors comply with
1 NSAA, 2003, page 2.
Authority contracts reviewed
by auditors define the
scope of the work, provide
measurable performance
and reporting requirements,
and define compensation.
Office of the Auditor General
page 25
contract terms, performance expectations are achieved, and any problems are
identified and resolved. According to authority officials and auditors’ observations,
before contracted work is performed, the services are generally preapproved by
the Authority, and before the contracts are paid, the CEO reviews reports regarding
the description of services provided and hours spent providing the service, some
of which include details down to 15-minute increments of time. The Authority’s
level of oversight appears to be appropriate for most of its contracts. However,
because its contract for primary legal services does not contain specific, up-to-date
payment terms, the Authority’s ability to fully monitor this vendor’s compliance
is limited.
Recommendations:
1.1. The Authority should follow its policies and conduct a competitive procurement
process for each contract with an expected value of $25,000 or more or
document the reasons for not conducting a competitive procurement process.
1.2. The Authority should develop and implement additional policies and procedures
that incorporate procurement best practices recommended by the National
State Auditors Association to help guide its future procurement activities. These
policies and procedures should require that:
a. Requests for proposals (RFP) specify the business needs; scope of work
desired; and the proposal evaluation criteria and weighting factors;
b. The award decision process ensures that proposals are received
appropriately and evaluated objectively. It should also ensure that contracts
are awarded fairly; and
c. Contract provisions define the scope of work, contract terms, allowable
renewals, and procedures for any changes; provide specific measurable
deliverables and reporting requirements; and describe the methods of
payment and payment schedules.
The Authority has
established processes for
preapproving contractor
work and reviewing services
provided before authorizing
payments.
State of Arizona
page 26
Authority has taken steps to improve financial
situation, but still faces challenges
The Arizona Sports and Tourism Authority (Authority) has taken
several steps to address its financial situation but still faces
financial challenges. Specifically, the Authority projects that its
operating reserve will be reduced by approximately $7.7 million
between fiscal years 2011 and 2014 despite steps taken in fiscal
years 2009 and 2010 to improve its financial situation, including
increasing revenues and decreasing expenses. Although
authority-prepared financial projections for fiscal years 2011
through 2016 show that the Authority will receive sufficient
revenue to pay bond debt service, its projected revenues are
insufficient to satisfy all funding priorities, its operating expenses,
and required reserve amounts. The Authority should continue to
take steps to improve its financial condition. Finally, although the
Authority has established a thorough budgeting and forecasting
process to help manage its finances, it faces challenges making long-term revenue
projections, including predicting economic conditions. To enhance its long-term
forecasts, the Authority should continue working with the Office of Tourism and other
tourism industry representatives to develop long-term revenue projections and
create different ranges of growth such as conservative, moderate, and aggressive
scenarios for its tax revenues.
Authority has taken actions, but revenues still insufficient
to satisfy all funding priorities
In fiscal years 2009 and 2010, the Authority took several steps to address its financial
situation. These actions, which included increasing revenues and decreasing
expenses, resulted in a nearly $9 million operating reserve as of June 30, 2010.
However, the Authority still faces financial shortfalls and projects that its operating
Office of the Auditor General
page 27
Legislative audit mandate
The audit shall review and evaluate:
• The options available to the
Authority to increase revenues
and decrease expenses to
address its anticipated deficits
and fund its reserve accounts.
• The adequacy of the Authority’s
cash flow projections in
accurately describing its receipts
and expenses.
Chapter 2
reserve will be reduced by approximately $7.7 million between fiscal years 2011 and
2014.
Authority’s actions have resulted in a nearly $9 million operating
reserve as of June 30, 2010—The Office of the Auditor General’s March
2009 performance audit found that the Authority had financial difficulties and that
it projected depleting all of its operating reserves in fiscal year 2010 (see Auditor
General Report No. 09-04). To address this situation, the Authority took steps that
resulted in a nearly $9 million operating reserve as of June 30, 2010, and it no
longer projects depleting its operating reserve. These steps included:
• Reducing multipurpose facility operating expenses—Similarly, according
to a facility manager representative and an authority official, the Authority has
been working with its facility manager to reduce facility operating expenses,
including reducing full-time positions from 54 in fiscal year 2009 to 32 in fiscal
year 2010 resulting in an approximately 30 percent reduction in payroll
expenses. In addition, the facility manager representative reported that it has
reduced utilities expenses by working with its electric company to run more
efficiently during off-peak hours, installing motion sensor switches for lighting,
and enrolling in a program that allows for selling of excess energy during peak
times. Further, as discussed in Chapter 4, pages 49 to 56, the management
fee for the facility manager was restructured, resulting in a savings of over 57
percent during fiscal year 2010. As shown in Figure 3 (see page 29), the
facility’s recurring operating expenses have decreased from $12.3 million in
fiscal year 2007, the facility’s initial year of operation, to approximately $9.4
million in fiscal year 2010. According to an authority official, the Authority
continues to work with the facility manager to look for additional opportunities
to reduce the facility’s operating expenses.
• Reducing authority operating expenses—The Authority has reduced its own
operating expenses through various actions such as eliminating one full-time
position, replacing a second full-time position with a contracted part-time
consultant, and limiting travel and marketing and promotion activities. As
shown in Figure 3 (see page 29), the Authority reduced its operating expenses
from more than $1.4 million in fiscal year 2007 to approximately $1.1 million in
fiscal year 2010. Additionally, according to authority-prepared projections,
further reductions will decrease operating expenses to less than $800,000 in
fiscal year 2011. The Authority reported that these reductions will primarily
come from reduced legal costs and additional payroll savings. According to
an authority official, the Authority continues to look for opportunities to reduce
its operational expenses.
• Obtaining a zero-percent interest rate loan and revenue advances from
new concessionaire—As discussed in Chapter 1 (see pages 15 to 25), in
February 2010, the Authority entered into a new contract for concessionaire
services. As part of this contract, the concessionaire provided a $1 million
zero-percent interest loan in fiscal year 2010. The contract requires the
The Authority has reduced
its operating expenses from
more than $1.4 million in
fiscal year 2007 to
approximately $1.1 million
in fiscal year 2010.
State of Arizona
page 28
Office of the Auditor General
page 29
Figure 3: Authority and Facility Operating Expenses1
Fiscal Years 2007 through 2010
1 To provide a consistent comparison, facility operating expenses include only recurring operating expenses
such as utilities, payroll, and Cardinals and Fiesta Bowl game day expenses. Nonrecurring event expenses
are not included in this figure because they fluctuate based on the number and type of events held each
year.
Source: Auditor General staff analysis of the Authority’s fiscal years 2007 and 2009 financial statements audited
by an independent certified public accounting firm; fiscal year 2010 Working Trial Balance report; fiscal
year 2011 Annual Financial Budget; and fiscal years 2008 and 2009 University of Phoenix Stadium
financial statements audited by an independent certified public accounting firm.
0
0.2
0.4
0.6
0.8
1
1.2
1.4
1.6
2007 2008 2009 2010
Authority Operating Expenses
(In Millions)
Fiscal Year
0
2
4
6
8
10
12
14
2007 2008 2009 2010
Facility Operating Expenses 1
(In Millions)
Fiscal Year
Authority to pay $250,000 annually beginning on August 1, 2011 through
August 1, 2014, to satisfy the loan. However, unless the contract is terminated,
the concessionaire will reimburse the Authority for these annual payments
beginning on August 1, 2011 through August 1, 2014. The contract has a
termination date of July 31, 2012, but includes unlimited optional 1-year
extensions. According to an authority official, even if the contract is not
extended, the Authority does not plan to use any of its resources to repay the
remaining loan amount. Specifically, the Authority plans to include a similar
arrangement in any future concessionaire contract so the Authority will not
have to repay the remaining loan amount, if any, with its own resources.
The contract also requires the concessionaire to provide advances against the
Authority’s share of future concessions revenues. The concessionaire provided
an advance of $500,000 during fiscal year 2010, and the contract provides for
three additional $500,000 revenue advance payments in January 2011,
August 2011, and August 2013. According to the contract, the concessionaire
will recoup the advance amounts by retaining the first $500,000 annually in
remittances owed to the Authority. However, even if the concessionaire has not
generated sufficient revenues to recoup the advance amounts annually, the
Authority will not have to repay these advances if it does not terminate the
contract.
• Entering a contract for guaranteed annual benefits with an event
management company—As discussed in Chapter 1 (see pages 15 to 25), in
February 2010, the Authority also entered into a separate contract with a
second event management company (Company), an affiliate of the concessions
vendor referred to above.1 As of July 2010, this event management company
works together with both the Authority and the facility manager to help increase
revenues and events at the facility and decrease expenses. The contract
provides the Authority with guaranteed operational revenue increases and/or
cost reductions of $750,000 each year for the duration of the contract. If the
Company does not generate actual annual benefits totaling $750,000, the
contract requires it to make up the difference to the Authority. Increased
revenues could result from an increase in sales tax recapture, food and
beverage sales, facility-use fees, and other revenues from facility events,
including Arizona Cardinals (Cardinals) National Football League events. Cost
reductions are event operating cost savings arising from the Company’s
initiatives or actions, which would also include Cardinals home game expenses
and goods or services provided by third parties. The contract terminates on
June 30, 2012, and includes unlimited optional 1-year extensions, but is only
effective as long as the new concessionaire contract is in effect.
• Taking advantage of and terminating in a favorable manner an agreement
designed to protect against interest rate increases—The Authority
terminated a Constant Maturity Swap (CMS) agreement it had established to
protect it from potential increases in the interest rate it pays on its $53.1 million
1 The Authority’s contract with the facility manager also requires it to perform event management responsibilities.
page 30
State of Arizona
variable-rate bonds. Under this agreement, the Authority paid another party a
specified market-indexed interest rate on its bonds, and the other party paid
the Authority an amount based on a different market-indexed interest rate. This
agreement attempted to even out the effective interest rate paid by the
Authority. Any difference between the two rates provided either a gain or loss
to the Authority. To take advantage of favorable interest rates, in January 2009
the Authority’s Board of Directors (Board) approved a resolution authorizing
the Authority to temporarily disable this agreement. When the interest rate
difference was in the Authority’s favor in February 2009, the Authority locked in
this difference and received payment of approximately $1.1 million. When
interest rates were again in the Authority’s favor in February 2010, the Board’s
Budget, Audit, and Finance Committee authorized the termination of this
agreement and the Authority received a payment of $1.6 million.
Revenues potentially insufficient to satisfy all funding priorities—The
Authority projects it will continue to face financial difficulties through fiscal year
2016, the last year for which it has made projections. Specifically, the Authority did
not receive sufficient revenues to meet all of its funding priorities in fiscal year 2010
and projects it will not meet them each year through fiscal year 2016. The Authority
has experienced declining tourism revenues from the hotel bed tax and car rental
surcharge, which it uses to help meet its bond debt obligations and distribute
monies for tourism promotion, Cactus League promotion, and youth and amateur
sports. As Table 5 shows (see page 32), through fiscal year 2009, the Authority had
sufficient total revenue to make maximum statutorily required distributions for all of
these responsibilities. However, revenues from hotel bed taxes and car rental
surcharges have decreased from approximately $25.5 million in fiscal year 2007 to
approximately $21 million both in fiscal years 2009 and 2010. Consequently,
although the revenues were sufficient to meet its bond debt obligations, they were
insufficient for monthly maximum statutorily required distributions for these other
purposes starting in fiscal year 2010. The Authority projects the same outcome for
fiscal years 2011 through 2016. Based on statutorily required distributions to these
three priorities, the Authority projects a revenue distribution shortfall of approximately
$17.4 million for fiscal years 2010 through 2016.
Besides having insufficient revenues to meet these statutorily required distributions,
the Authority also projects deficits for its own operations through fiscal year 2014,
as shown in Table 6 (see page 33). Projected operating deficits range from
approximately $800,000 to $3 million and by fiscal year 2016 its cumulative
operating deficit is projected to total approximately $6 million. The Authority
projects these operating deficits will reduce its operating reserve by approximately
$7.7 million between fiscal years 2011 and 2014. However, the Authority might use
more of its operating reserve or even deplete it if revenues do not increase as
projected. For example, as discussed on pages 38 to 39, the Authority projects
that its tourism revenues will increase 2.5 percent in fiscal year 2012 and 5 percent
annually in fiscal years 2013 through 2016. If these increases do not materialize,
Authority revenues from
hotel bed taxes and car
rental surcharges have
decreased from
approximately $25.5 million
in fiscal year 2007 to
approximately $21 million in
fiscal year 2010.
Office of the Auditor General
page 31
page 32
State of Arizona
Table 5: Impact of Revenue Shortfalls on Tourism Promotion, Cactus League Promotion,
and Youth and Amateur Sports Distributions
Fiscal Years 2001 through 2016
(In Millions)
1 Includes amounts from the Facility Revenue Clearing Account (Account) that are projected to retire a portion of the Authority’s $32.4 million subordinate bonds issued
to build the City of Surprise Stadium. The Authority used $1.9 million through fiscal year 2010 and estimates it will use $9.8 million from the Account to pay for debt
service during fiscal years 2011 through 2016.
2 Amounts are the annual totals to make the monthly distributions required by A.R.S. §5-835 assuming revenues were, or will be, sufficient to make the full distribution.
3 Since the amounts that were, or will be, distributed are based on having sufficient monthly revenues available to do so, the actual or projected distributions may not
meet the maximum amounts specified in A.R.S. §5-835. However, for years prior to fiscal year 2010, the Authority chose to use its operating account monies to fully
fund these distributions even when available monthly revenues in the Tourism Revenue Clearing Account were not sufficient to do so.
Source: Auditor General staff analysis of A.R.S. §5-835, and the Authority’s fiscal years 2005 and 2011 Annual Financial Budget; fiscal years 2001 through 2009 general
ledgers; and November 2010 cash flow projections.
Fiscal
Year
Actual:
2001 $ 0.3 $ 0.3 $ - $ 0.2 $ 0.2 $ - $ 0.1 $ 0.1 $ - $ -
2002 4.0 4.0 - 3.0 3.0 - 1.0 1.0 - -
2003 4.2 4.2 - 3.0 3.0 - 1.1 1.1 - -
2004 4.4 4.4 - 3.0 3.0 - 1.2 1.2 - -
2005 4.7 4.7 - 3.0 3.0 - 1.3 1.3 - -
2006 4.9 4.9 - 3.0 3.0 - 1.4 1.4 - -
2007 5.1 5.1 - 3.0 3.0 - 1.5 1.5 - -
2008 5.4 5.4 - 3.1 3.1 - 1.6 1.6 - -
2009 5.6 5.6 - 4.0 4.0 - 1.7 1.7 - -
2010 5.9 5.3 (0.6) 4.0 3.8 (0.2) 1.8 0.9 (0.9) (1.7)
Estimated:
2011 6.2 5.4 (0.8) 4.2 3.9 (0.3) 1.9 0.9 (1.0) (2.1)
2012 6.5 5.8 (0.7) 6.0 5.3 (0.7) 2.0 0.8 (1.2) (2.6)
2013 6.9 6.2 (0.7) 6.1 5.3 (0.8) 2.1 0.9 (1.2) (2.7)
2014 7.2 6.6 (0.6) 7.0 5.9 (1.1) 2.2 0.9 (1.3) (3.0)
2015 7.6 7.1 (0.5) 7.0 6.0 (1.0) 2.3 1.1 (1.2) (2.7)
2016 8.0 7.6 (0.4) 7.0 6.0 (1.0) 2.4 1.2 (1.2) (2.6)
Total $ 86.9 $ 82.6 $ (4.3) $ 66.6 $ 61.5 $ (5.1) $ 25.6 $ 17.6 $ (8.0) $ (17.4)
Annual
Total Revenue
Shortfall for
Making
Maximum
Statutorily
Required
Distributions
if Revenues
Revenue
Shortfall for
Making Making
Shortfall for
Revenue Statutorily
Statutory
Actual or
Projected
Revenue
Shortfall for
Making
Maximum
Are Statutory
if Revenues
Are
Actual or
Projected
Maximum
Are Projected Statutory
Actual or
Statutory
Maximum
Required
Distributions
Required
Distributions
if Revenues
Annual Annual
Distributions Distributions 3
Tourism Promotion Cactus League Promotion 1
Sufficient 2 Distributions Distributions 3 Sufficient 2 Distributions Distributions 3 Sufficient 2 Distributions 3
Youth and Amateur Sports
Statutorily
the Authority may have to rely on its operating reserve to make up the difference.
Conversely, if revenues increase more than projected, the Authority may not need
to rely on its reserve as much.
The Authority’s projected revenue is also insufficient to fund the three statutorily
required reserve accounts. Specifically:
• Youth and amateur sports reserve—The Authority has set aside sufficient
monies to meet statutory requirements for fully funding this reserve prior to
fiscal year 2010. As of June 30, 2010, the Authority had distributed
approximately $1.9 million to this reserve. However, the Authority has not
appropriately applied the funding requirements specified by Arizona Revised
Statutes (A.R.S.) §5-835 to this reserve and it projects being unable to fully
fund the youth and amateur sports reserve for fiscal years 2011 through 2016
because of revenue shortfalls. Specifically, the Authority annually allocates
monies to the reserve instead of monthly as required by statute. Annually
funding this reserve as opposed to funding the reserve on a monthly basis
potentially reduces the amount of monies distributed to the reserve.
Additionally, the Authority did not use this reserve to make up for any tourism
revenue shortfalls in monthly distributions to youth and amateur sports as
required by A.R.S. §5-838(B). Instead, the Authority used its operating monies
to make up for revenue shortfalls prior to fiscal year 2010. If the Authority had
followed statute, the reserve would have been used regularly during fiscal year
2010 to make up for the revenue shortfalls in its youth and amateur sports
program and the balance in its reserve account would have been less than
statutorily required. However, because the Authority used its operating monies
to fully fund any prior shortfalls in monthly allocations to the youth and amateur
sports program, the program as a whole is not underfunded. To ensure
The Authority projects being
unable to fully fund the
youth and amateur sports
reserve for fiscal years 2011
through 2016.
Office of the Auditor General
page 33
Table 6: Summary of Projected Cumulative
Operating Deficit
Fiscal Years 2011 through 2016
(In Millions)
(Unaudited)
Source: Auditor General staff analysis of the Authority’s November 2010 cash
flow projections for fiscal years 2011 through 2016.
Fiscal
Year
2011 $ (2.6) $ (2.6)
2012 (3.0) (5.6)
2013 (1.3) (6.9)
2014 (0.8) (7.7)
2015 0.3 (7.4)
2016 1.4 (6.0)
Projected
Operating (Deficit)
Surplus
Projected
Cumulative
Operating Deficit
State of Arizona
page 34
compliance with statute, the Authority should properly apply the funding
priorities required in A.R.S. §5-835 and use the reserve to fund monthly
revenue shortfalls as required by A.R.S. §5-838(B).
• Operating reserve—Although the Authority reported an operating reserve
totaling nearly $9 million as of June 30, 2010, based on its projections the
Authority will not be able to set aside additional monies for its operating
reserve and projects that it will reduce this balance by $7.7 million between
fiscal years 2011 and 2014.
• Capital repair and replacement reserve—Finally, according to A.R.S.
§5-836(C)(2), the Authority is required to establish a reserve of at least $25
million, adjusted for inflation each year after 2001, to meet facility repair,
replacement, and removal expenses. This reserve is critical to addressing
major capital repairs and renovations that arise as the facility ages. However,
the Authority stated that revenues have been insufficient to fund this reserve.
Limited options for increasing revenues and reducing
expenses available
The Authority has limited options it could pursue to further address its financial
situation. One option will potentially become available in fiscal year 2016, when the
Authority will retire its subordinate bond debt, potentially making monies available for
authority operations. The Authority’s near-term options for addressing its financial
situation are limited to its operating activities because most authority revenues and
distributions are restricted by voter-approved or statutory mandates and facility
agreements.
Retirement of subordinate bond debt in fiscal year 2016 may free up
monies for authority use—The scheduled retirement of the Authority’s
subordinate bonds in fiscal year 2016 may assist the Authority in addressing its
financial situation, but not until that time. The Authority issued these bonds in fiscal
year 2003 to provide funding for the construction of the City of Surprise Cactus
League spring-training baseball facility (see Chapter 3, page 45 for information on
the subordinate bonds). Although the Authority uses its tourism revenues first to
meet this bond obligation, it also pledged its facility revenues to help satisfy this
obligation in the event that tourism revenues are insufficient to meet the bond debt
service requirements. For example, in fiscal year 2010, the Authority used
approximately $1.4 million in facility revenues to meet this debt obligation, and it
projects that an additional $9.8 million in facility revenues will be needed in fiscal
years 2011 through 2016 to satisfy the remaining bond debt obligation.
According to A.R.S. §5-834, any revenues not needed for the Authority’s senior
bond obligations or other debt secured with the facility revenues are available for
The Authority has not
funded the statutorily
required capital repair and
replacement reserve.
Office of the Auditor General
page 35
operations. Consequently, after the subordinate bonds are retired, the Authority
may have additional monies for operations.
Authority should continue taking steps to increase revenues and
decrease expenses—The Authority and its Board of Directors should
continue to take steps to address its financial shortfall. The Authority’s options for
addressing its projected deficits are limited because much of its revenues and
required distributions of those revenues are restricted. Specifically, the hotel bed
tax and car rental surcharge are voter-protected revenues that would require voter
approval to change, while the NFL income taxes, sales tax recapture monies, and
distribution of most of these revenues would require legislative action to change.
Additionally, various facility agreements further limit authority options for generating
revenues and reducing expenses. For example, according to an agreement with
the Cardinals, the Authority pays for all Cardinals’ game day expenses, which were
more than $2.3 million annually in fiscal years 2009 and 2010, while the Cardinals
paid approximately $265,300 in rent for fiscal year 2010 and receive all game day
revenues. However, the Authority receives a portion of all sales tax revenues
generated at Cardinals home games which, according to the Authority, totaled
approximately $4 million in fiscal year 2010. Facility-use fee agreements also
restrict how monies generated from facility-use fees on facility event tickets,
including Cardinals’ game tickets, can be used. Further, as stated in A.R.S. §§5-
836(D) and 5-875(C)(4-5), the State of Arizona is not financially liable for any of the
Authority’s expenses or obligations. Steps the Authority should take include the
following:
• Continuing to explore options for increasing revenues for events held at
the facility—The Authority should continue to explore options for increasing
facility event revenue. As shown in Table 7, the reported number of events
hosted and the nonfootball event attendance has declined each year since it
opened in fiscal year 2007
except in fiscal year 2010,
and the Authority projects
additional declines in fiscal
year 2011. According to an
authority official, the reduction
in the number of events is
consistent with the normal
operation of any new stadium
or sports facility over the first
5 years of operation.
According to University of
Phoenix Stadium records
and a facility manager
representative, there were
several large events that
brought in substantial
The Authority’s options for
addressing its projected
deficits are limited because
much of its revenues and
required distributions are
restricted.
Table 7: Number of Multipurpose Facility Events and
Event Attendance
Fiscal Years 2007 through 2011
(Unaudited)
1 Excludes events held in conjunction with the facility’s grand opening.
Source: Auditor General staff analysis of the Authority’s fiscal year 2011 budget
worksheets and information provided by the Authority’s facility manager.
Number of Nonfootball Football
Events Attendance Attendance
2007 1 179 499,699 711,009
2008 132 454,431 613,604
2009 121 433,469 745,752
2010 113 513,361 706,784
101 325,185 695,893
Fiscal
Year
2011 (Est.)
State of Arizona
page 36
revenues and attendees during fiscal year 2010. These large events resulted
in increased operating revenues. However, according to an authority official,
the Authority has only one large event scheduled for fiscal year 2011; therefore,
it projects its operating revenues will decrease in fiscal year 2011.
A facility manager representative reports that in addition to trying to secure
major ticketed events, the management team continues to expand its roster of
consumer, trade, and special and corporate event categories by aggressively
marketing the facility to destination management companies and new local
and national show producers. For example, the fiscal year 2011 event
schedule includes a gun show and a children’s exposition. According to an
authority official, the Authority’s goal is to hold approximately 100 events per
year and its Board directed staff and the facility manager to focus on larger
revenue-generating events. As shown in Table 7 (see page 35), the Authority
held 113 events in fiscal year 2010 and projects holding 101 events in fiscal
year 2011, which is in line with the Authority’s goal. A facility manager
representative reports that the management team is working to secure
additional events in fiscal year 2011 such as two motorsports events and
soccer events, and has been working for the past one-and-a-half years for a
soccer world cup event in 2018 or 2022. In addition, the Authority has taken
steps to increase event revenues, such as entering an agreement with a
second event management company to increase revenues (see page 30).
• Continuing to explore options for decreasing operating expenses—As
discussed on page 28 and shown in Figure 3 (see page 29), the Authority has
taken steps to reduce its operating expenses and worked with its facility
manager to reduce the facility’s operating expenses. The Authority should
continue to explore options to decrease operating expenses to provide it with
monies that can be used for operations and potentially reserved for future
needs, such as facility improvements and renovations. For example, the
Authority should consider whether it can further reduce its legal costs.
Specifically, during each of fiscal years 2008 and 2010 the Authority paid more
than $255,000 in legal expenses and during fiscal year 2009, it paid
approximately $172,000 in legal expenses. For fiscal years 2008 and 2010,
these expenses represented nearly 25 percent of the Authority’s annual
operating expenses. Although the legal services it needs will vary from year to
year, these expenses could potentially be reduced. Therefore, the Authority
should continually review its legal services and the related expenses to
determine if opportunities exist to reduce these expenses.
Finally, as discussed on page 34, the Authority has been unable to fund its capital
repair and replacement reserve and projects revenues will not be sufficient to do
so through fiscal year 2016, when the facility will be 10 years old. Consequently,
the Authority may not have sufficient monies to make needed repairs to the facility
and provide for its upkeep as the facility ages. Because the Cardinals have a
vested interest in maintaining and potentially renovating the facility as it ages, they
Because the Authority has
not funded its capital repair
and replacement reserve, it
may not have sufficient
monies to make future
needed facility repairs.
Office of the Auditor General
page 37
may be willing to renegotiate the facility-use fee agreement to make some of the
monies that are deposited in a trust account available for facility repairs. As
previously mentioned, the facility-use fee and associated agreements with the
Cardinals were established to generate revenues to retire the Authority’s $53.1
million bond debt and to reimburse the Cardinals for certain construction and other
costs they incurred that were not their obligation (see Introduction and Background,
pages 1 to 13). Under the agreement, the Cardinals receive the facility-use fees
from the sale of Cardinals game tickets. The Authority receives facility-use fees
from the Fiesta Bowl and other facility events. The Cardinals’ monies are deposited
into a trust account and, according to the facility-use agreement, are available for
debt service payments on the Authority’s $53.1 million bond debt, but only if
certain conditions are met.1 During fiscal years 2007 through 2010, approximately
$10.2 million has been deposited into the trust account. However, because the
Authority has not needed to access these monies to help retire the bond debt, the
money has been paid to the Cardinals (see Introduction and Background, page 5,
for more information).
Authority has reasonable 1-year revenue and expense
projections and prepares long-term revenue projections
for planning purposes
The Authority prepares an annual budget that includes short-team revenue and
expense projections for the upcoming fiscal year and long-term revenue and
expense projections for an additional 5 fiscal years for planning purposes. The
Authority’s 1-year revenue projections are based on reasonable methods, but the
Authority faces challenges making long-term revenue projections, which have been
less reliable than its 1-year projections. To enhance its long-term projections, the
Authority should continue to work with the Office of Tourism and other tourism
industry representatives to develop tourism revenue projections and create different
ranges of growth such as conservative, moderate, and aggressive scenarios for its
tax revenues. Finally, the Authority uses reasonable procedures to project its
expenses.
Authority’s 1-year revenue projections reasonable—The Authority’s
budget includes projections for all of its revenues, and as shown in Figure 4 (see
page 38), the Authority’s fiscal years 2002 through 2010 1-year revenue projections
for its tax revenues generally provided reasonable estimates of its actual tax
revenues.2 Although the Authority’s 1-year revenue projections for individual tax
revenues produced mixed results, its overall projections from its four tax revenues
1 According to the facility-use fee trust agreement, a ratio of 74.9 percent was established to determine whether the
Cardinals’ facility-use fees maintained in the trust would be used to help meet the $53.1 million bond debt service
requirements. The Authority annually determines if it received sufficient revenues to pay 74.9 percent of the $53.1
million bond debt service. If it received enough monies, then the Authority cannot use the facility-use fees in the trust
account for debt service payments.
2 Tax revenues consist of hotel bed taxes, car rental surcharges, NFL income taxes, and sales tax recapture revenues.
combined produced reasonable estimates. For example, the Authority’s projected
hotel bed taxes for fiscal year 2009 were 14.8 percent higher than actual revenues;
however, the Authority projected all tax revenues combined at approximately 1.1
percent less than actual revenues.
Authority faces challenges projecting long-term revenues—The
Authority has experienced challenges in providing reliable long-term projections,
which it prepares for planning purposes, because many of its revenues are
affected by the State’s economy. For example, in both its fiscal year 2007 and 2008
budgets, the Authority projected an approximately 5 percent annual increase in its
hotel bed tax revenues for fiscal years 2009 and 2010. Similarly, in its fiscal year
2009 budget, it projected a 5 percent increase in fiscal year 2010 for these tax
revenues. However, the hotel bed taxes actually declined by nearly 18 and 7
percent in fiscal years 2009 and 2010, respectively, because the State entered a
recession.
Projecting long-term revenues will continue to be challenging because the
Authority must consider economic changes such as recessions, expansions, and
inflationary periods. The State of Arizona has encountered similar challenges
projecting revenues. For example, according to the State of Arizona’s Joint
Projecting long-term
revenues can be
challenging.
State of Arizona
page 38
Figure 4: Comparison of Projected to Actual Tax Revenues1
Fiscal Years 2002 through 2010
1 Tax revenues consist of hotel bed taxes, car rental surcharges, NFL income taxes, and sales tax recapture revenues.
Source: Auditor General staff analysis of the Authority’s fiscal years 2002 through 2010 Annual Financial Budget; fiscal years
2002 through 2009 financial statements audited by independent certified public accounting firms; and fiscal year
2010 Working Trial Balance report.
0
5
10
15
20
25
30
35
40
2002 2003 2004 2005 2006 2007 2008 2009 2010
(In Millions)
Fiscal Year
Projected
Actual
Office of the Auditor General
page 39
Legislative Budget Committee, “long-term revenue projection is speculative;”
however, “most economists are forecasting some future growth but the precise
magnitude is difficult to predict with any certainty.”1
Despite these challenges, reasonably accurate revenue forecasts are important
for the Authority to manage its finances. Specifically, the Authority’s projected
depletion of its operating reserves in fiscal year 2014 is based on tourism revenues
increasing 2.5 percent in fiscal year 2012 and 5 percent annually during fiscal
years 2013 through 2016. Similarly, it is based on NFL income taxes increasing 5
percent and sales tax recapture revenues increasing between 3.7 and 9.2 percent
during fiscal years 2012 through 2016. If these forecasted increases are
substantially incorrect, the Authority may need to